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." WhiteHorse Finance (NASDAQ: WHF) shares currently have a dividend yield of 10.50%. Whitehorse Finance, LLC is a fund of HIG Capital LLC. The company has a P/E ratio of 11.05. The average volume for WhiteHorse Finance has been 47,300 shares per day over the past 30 days. WhiteHorse Finance has a market cap of $202.1 million and is part of the financial services industry. Shares are down 10.7% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates WhiteHorse Finance as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and notable return on equity. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive. Highlights from the ratings report include:
- Net operating cash flow has improved to $10.97 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- The gross profit margin for WHITEHORSE FINANCE INC is rather high; currently it is at 63.15%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, WHF's net profit margin of 73.53% significantly outperformed against the industry.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, WHF has underperformed the S&P 500 Index, declining 11.97% from its price level of one year ago.
- The revenue fell significantly faster than the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 45.9%. 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 Capital Markets industry. The net income has decreased by 20.6% when compared to the same quarter one year ago, dropping from $7.97 million to $6.34 million.
- You can view the full WhiteHorse Finance Ratings Report.