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 "Hold."THL Credit (NASDAQ: TCRD) shares currently have a dividend yield of 10.00%. THL Credit, Inc. is a business development company specializing in direct and fund of fund investments. The fund seeks to invest in debt and equity securities of middle market companies. The company has a P/E ratio of 9.92. The average volume for THL Credit has been 290,500 shares per day over the past 30 days. THL Credit has a market cap of $461.4 million and is part of the financial services industry. Shares are down 16.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates THL Credit as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and increase in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. 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 rose by 12.9%. 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 THL CREDIT INC is rather high; currently it is at 61.65%. Regardless of TCRD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TCRD's net profit margin of 57.81% significantly outperformed against the industry.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Capital Markets industry. The net income increased by 9.4% when compared to the same quarter one year prior, going from $9.78 million to $10.69 million.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, TCRD has underperformed the S&P 500 Index, declining 8.11% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has significantly decreased to -$66.97 million or 503.81% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full THL Credit Ratings Report.
- MSB has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.47, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for MESABI TRUST is currently very high, coming in at 100.00%. MSB has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, MSB's net profit margin of 96.67% significantly outperformed against the industry.
- The revenue fell significantly faster than the industry average of 7.9%. Since the same quarter one year prior, revenues fell by 46.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 47.2% when compared to the same quarter one year ago, falling from $11.62 million to $6.14 million.
- Net operating cash flow has significantly decreased to $6.89 million or 52.95% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Mesabi Ratings Report.
- Net operating cash flow has significantly increased by 146.75% to $11.85 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 124.57%.
- The gross profit margin for MCG CAPITAL CORP is currently very high, coming in at 77.14%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -164.94% is in-line with the industry average.
- MCGC, with its decline in revenue, slightly underperformed the industry average of 7.7%. Since the same quarter one year prior, revenues fell by 16.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Capital Markets industry and the overall market, MCG CAPITAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of MCG CAPITAL CORP has not done very well: it is down 24.12% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full MCG Capital Corporation Ratings Report.
- Our dividend calendar.