Buy-Rated Dividend Stocks: Top 3 Companies: AI, PFLT, MCC

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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."

Arlington Asset Investment

Dividend Yield: 13.70%

Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 13.70%.

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 9.08.

The average volume for Arlington Asset Investment has been 278,800 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $488.5 million and is part of the real estate industry. Shares are down 2.7% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Arlington Asset Investment as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 166.10% to $19.82 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 119.00%.
  • The gross profit margin for ARLINGTON ASSET INVESTMENT is rather high; currently it is at 54.48%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, AI's net profit margin of 374.22% significantly outperformed against the industry.
  • ARLINGTON ASSET INVESTMENT 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, ARLINGTON ASSET INVESTMENT reported lower earnings of $2.96 versus $15.11 in the prior year. This year, the market expects an improvement in earnings ($3.79 versus $2.96).
  • The revenue fell significantly faster than the industry average of 7.7%. Since the same quarter one year prior, revenues fell by 46.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • In its most recent trading session, AI 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

PennantPark Floating Rate Capital

Dividend Yield: 7.80%

PennantPark Floating Rate Capital (NASDAQ: PFLT) shares currently have a dividend yield of 7.80%.

PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. The company has a P/E ratio of 9.81.

The average volume for PennantPark Floating Rate Capital has been 80,900 shares per day over the past 30 days. PennantPark Floating Rate Capital has a market cap of $205.0 million and is part of the financial services industry. Shares are up 0.8% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates PennantPark Floating Rate Capital as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • PFLT's very impressive revenue growth greatly exceeded the industry average of 7.7%. Since the same quarter one year prior, revenues leaped by 72.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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 243.2% when compared to the same quarter one year prior, rising from $1.77 million to $6.06 million.
  • The gross profit margin for PENNANTPARK FLOATING RT CAP is rather high; currently it is at 57.92%. Regardless of PFLT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PFLT's net profit margin of 88.50% significantly outperformed against the industry.
  • In its most recent trading session, PFLT 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • PENNANTPARK FLOATING RT CAP reported significant earnings per share improvement 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, PENNANTPARK FLOATING RT CAP reported lower earnings of $1.30 versus $1.75 in the prior year. For the next year, the market is expecting a contraction of 16.1% in earnings ($1.09 versus $1.30).

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Medley Capital

Dividend Yield: 11.00%

Medley Capital (NYSE: MCC) shares currently have a dividend yield of 11.00%.

Medley Capital Corporation is a business development company. The fund seeks to invest in privately negotiated debt and equity securities of small and middle market companies. The company has a P/E ratio of 10.26.

The average volume for Medley Capital has been 603,700 shares per day over the past 30 days. Medley Capital has a market cap of $619.5 million and is part of the financial services industry. Shares are down 3.5% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Medley Capital as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, expanding profit margins, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • MCC's very impressive revenue growth greatly exceeded the industry average of 7.7%. Since the same quarter one year prior, revenues leaped by 78.7%. 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.
  • The gross profit margin for MEDLEY CAPITAL CORP is rather high; currently it is at 68.11%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 45.13% significantly outperformed against the industry average.
  • 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 48.7% when compared to the same quarter one year prior, rising from $9.61 million to $14.29 million.
  • Net operating cash flow has significantly increased by 55.02% to -$54.61 million when compared to the same quarter last year. Despite an increase in cash flow of 55.02%, MEDLEY CAPITAL CORP is still growing at a significantly lower rate than the industry average of 119.00%.
  • MEDLEY CAPITAL CORP's earnings per share declined by 7.7% 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, MEDLEY CAPITAL CORP increased its bottom line by earning $1.32 versus $1.24 in the prior year. This year, the market expects an improvement in earnings ($1.56 versus $1.32).

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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