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."Solar Senior Capital (NASDAQ: SUNS) shares currently have a dividend yield of 8.30%. Solar Senior Capital Ltd. is a business development company specializing in investments in leveraged, middle-market companies in the United States. The fund invests in the form of senior secured loans, including first lien, unitranche, and second lien debt instruments. The company has a P/E ratio of 15.75. The average volume for Solar Senior Capital has been 50,900 shares per day over the past 30 days. Solar Senior Capital has a market cap of $195.1 million and is part of the financial services industry. Shares are down 8% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Solar Senior Capital as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 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 645.0% when compared to the same quarter one year prior, rising from $0.76 million to $5.63 million.
- The gross profit margin for SOLAR SENIOR CAPITAL LTD is currently very high, coming in at 72.43%. Regardless of SUNS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SUNS's net profit margin of 99.48% significantly outperformed against the industry.
- SOLAR SENIOR CAPITAL LTD 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SOLAR SENIOR CAPITAL LTD reported lower earnings of $1.11 versus $1.46 in the prior year. This year, the market expects an improvement in earnings ($1.30 versus $1.11).
- 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. When compared to other companies in the Capital Markets industry and the overall market, SOLAR SENIOR CAPITAL LTD's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$27.11 million or 235.03% 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 Solar Senior Capital Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.9%. Since the same quarter one year prior, revenues slightly increased by 8.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for EDUCATIONAL DEVELOPMENT CORP is rather high; currently it is at 61.24%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 6.44% is above that of the industry average.
- EDUC's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.99 is somewhat weak and could be cause for future problems.
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Distributors industry and the overall market, EDUCATIONAL DEVELOPMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Educational Development Ratings Report.
- RNO, with its decline in revenue, underperformed when compared the industry average of 7.5%. Since the same quarter one year prior, revenues fell by 24.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for RHINO RESOURCE PARTNERS LP is currently lower than what is desirable, coming in at 30.06%. Regardless of RNO's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.25% trails the industry average.
- Despite currently having a low debt-to-equity ratio of 0.58, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that RNO's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.57 is low and demonstrates weak liquidity.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 91.3% when compared to the same quarter one year ago, falling from $9.38 million to $0.82 million.
- Net operating cash flow has decreased to $11.52 million or 46.94% 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 Rhino Resource Partners Ratings Report.
- Our dividend calendar.