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." Solar Capital (NASDAQ: SLRC) shares currently have a dividend yield of 7.30%. Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 13.00. The average volume for Solar Capital has been 231,400 shares per day over the past 30 days. Solar Capital has a market cap of $962.5 million and is part of the financial services industry. Shares are down 3.4% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Solar Capital as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Capital Markets industry average. The net income increased by 24.2% when compared to the same quarter one year prior, going from $23.30 million to $28.95 million.
- Net operating cash flow has significantly increased by 345.00% to $522.71 million when compared to the same quarter last year. In addition, SOLAR CAPITAL LTD has also vastly surpassed the industry average cash flow growth rate of 93.28%.
- The gross profit margin for SOLAR CAPITAL LTD is rather high; currently it is at 63.89%. Regardless of SLRC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SLRC's net profit margin of 81.85% significantly outperformed against the industry.
- SLRC, with its decline in revenue, slightly underperformed the industry average of 7.7%. Since the same quarter one year prior, revenues fell by 14.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- SOLAR CAPITAL LTD has improved earnings per share by 8.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, SOLAR CAPITAL LTD reported lower earnings of $1.70 versus $3.12 in the prior year. For the next year, the market is expecting a contraction of 0.6% in earnings ($1.69 versus $1.70).
- You can view the full Solar Capital Ratings Report.