While plenty of high-yield opportunities exist, investors must always consider the safety of their dividend and the total return potential of their investment. It is not uncommon for a struggling company to suspend high-yielding dividends which could subsequently result in precipitous share price declines.
TheStreet Ratings' stock rating model views dividends favorably, but not so much that other factors are disregarded. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.
These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel — rather, use them as a starting point for your own research.
The following pages contain our analysis of 3 stocks with substantial yields, that ultimately, we have rated "Buy." BlackRock Kelso Capital Corporation (NASDAQ: BKCC) shares currently have a dividend yield of 11.20%. BlackRock Kelso Capital Corporation is a private equity firm specializing in investments in middle market companies. The firm invests in all industries. The company has a P/E ratio of 7.77. The average volume for BlackRock Kelso Capital Corporation has been 449,100 shares per day over the past 30 days. BlackRock Kelso Capital Corporation has a market cap of $689.3 million and is part of the financial services industry. Shares are down 1.7% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates BlackRock Kelso Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, attractive valuation levels, expanding profit margins, growth in earnings per share and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 38.5% when compared to the same quarter one year prior, rising from $14.33 million to $19.84 million.
- 47.47% is the gross profit margin for BLACKROCK KELSO CAPITAL CORP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, BKCC's net profit margin of 63.23% significantly outperformed against the industry.
- BLACKROCK KELSO CAPITAL CORP has improved earnings per share by 36.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BLACKROCK KELSO CAPITAL CORP reported lower earnings of $0.78 versus $1.06 in the prior year. This year, the market expects an improvement in earnings ($0.93 versus $0.78).
- BKCC, with its decline in revenue, slightly underperformed the industry average of 16.6%. Since the same quarter one year prior, revenues fell by 22.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full BlackRock Kelso Capital Corporation Ratings Report.
- LRE's revenue growth has slightly outpaced the industry average of 7.8%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has slightly increased to $17.83 million or 1.16% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.54%.
- In its most recent trading session, LRE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors.
- LRR ENERGY LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, LRR ENERGY LP reported poor results of -$1.90 versus $0.00 in the prior year. This year, the market expects an improvement in earnings ($1.11 versus -$1.90).
- The debt-to-equity ratio of 1.30 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, LRE has managed to keep a strong quick ratio of 1.68, which demonstrates the ability to cover short-term cash needs.
- You can view the full LRR Energy Ratings Report.
- The revenue growth greatly exceeded the industry average of 16.6%. Since the same quarter one year prior, revenues rose by 21.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Capital Markets industry and the overall market, HERCULES TECH GROWTH CAP INC's return on equity exceeds that of both the industry average and the S&P 500.
- The gross profit margin for HERCULES TECH GROWTH CAP INC is currently very high, coming in at 91.53%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 74.96% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 193.92% to $98.94 million when compared to the same quarter last year. In addition, HERCULES TECH GROWTH CAP INC has also vastly surpassed the industry average cash flow growth rate of 124.49%.
- Compared to its closing price of one year ago, HTGC's share price has jumped by 25.06%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HTGC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- You can view the full Hercules Technology Growth Capital Ratings Report.
- Our dividend calendar.