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."Medallion Financial (NASDAQ: TAXI) shares currently have a dividend yield of 7.10%. Medallion Financial Corp., through its subsidiaries, operates as a specialty finance company in the United States. The company is engaged in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. The company has a P/E ratio of 11.88. The average volume for Medallion Financial has been 168,500 shares per day over the past 30 days. Medallion Financial has a market cap of $324.0 million and is part of the financial services industry. Shares are down 10% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Medallion Financial as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 7.6%. 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 MEDALLION FINANCIAL CORP is rather high; currently it is at 55.88%. Regardless of TAXI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TAXI's net profit margin of 65.38% significantly outperformed against the industry.
- Net operating cash flow has significantly increased by 58.01% to $7.46 million when compared to the same quarter last year. Despite an increase in cash flow of 58.01%, MEDALLION FINANCIAL CORP is still growing at a significantly lower rate than the industry average of 130.08%.
- 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 2.0% when compared to the same quarter one year prior, going from $6.52 million to $6.66 million.
- In its most recent trading session, TAXI 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Medallion Financial Ratings Report.
- ARI's very impressive revenue growth greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues leaped by 55.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for APOLLO COMMERCIAL RE FIN INC is currently very high, coming in at 76.41%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 73.88% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 62.97% to $12.13 million when compared to the same quarter last year. In addition, APOLLO COMMERCIAL RE FIN INC has also vastly surpassed the industry average cash flow growth rate of 11.11%.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 76.9% when compared to the same quarter one year prior, rising from $8.97 million to $15.86 million.
- APOLLO COMMERCIAL RE FIN INC has improved earnings per share by 42.3% 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, APOLLO COMMERCIAL RE FIN INC reported lower earnings of $1.26 versus $1.68 in the prior year. This year, the market expects an improvement in earnings ($1.63 versus $1.26).
- You can view the full Apollo Commercial Real Estate Finance Ratings Report.
- The revenue growth came in higher than the industry average of 7.3%. Since the same quarter one year prior, revenues rose by 16.6%. 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 FIDUS INVESTMENT CORP is currently very high, coming in at 70.43%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 41.00% significantly outperformed against the industry average.
- 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, FIDUS INVESTMENT CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- In its most recent trading session, FDUS 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.
- FIDUS INVESTMENT CORP's earnings per share declined by 20.9% 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, FIDUS INVESTMENT CORP increased its bottom line by earning $2.01 versus $1.91 in the prior year. For the next year, the market is expecting a contraction of 12.2% in earnings ($1.77 versus $2.01).
- You can view the full Fidus Investment Ratings Report.
- Our dividend calendar.