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." Pennant Park Investment Corporation (NASDAQ: PNNT) shares currently have a dividend yield of 10.20%. PennantPark Investment Corporation is a publicly listed business development firm specializing in direct and mezzanine investments in middle market companies. It invests in the form of mezzanine debt, senior secured loans, and equity investments. The company has a P/E ratio of 7.14. The average volume for Pennant Park Investment Corporation has been 455,000 shares per day over the past 30 days. Pennant Park Investment Corporation has a market cap of $730.9 million and is part of the financial services industry. Shares are down 6.5% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Pennant Park Investment Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, expanding profit margins, notable return on equity and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 7.7%. Since the same quarter one year prior, revenues slightly increased by 4.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for PENNANTPARK INVESTMENT CORP is rather high; currently it is at 65.38%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 114.56% significantly outperformed against the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Capital Markets industry average. The net income increased by 38.2% when compared to the same quarter one year prior, rising from $28.54 million to $39.46 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, PENNANTPARK INVESTMENT CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- PENNANTPARK INVESTMENT CORP has improved earnings per share by 34.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, PENNANTPARK INVESTMENT CORP increased its bottom line by earning $1.39 versus $1.21 in the prior year. For the next year, the market is expecting a contraction of 20.1% in earnings ($1.11 versus $1.39).
- You can view the full Pennant Park Investment Corporation Ratings Report.