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." New Mountain Finance (NYSE: NMFC) shares currently have a dividend yield of 9.50%. New Mountain Finance Corporation operates as a closed-end, non-diversified management investment company. The company has a P/E ratio of 8.19. The average volume for New Mountain Finance has been 408,800 shares per day over the past 30 days. New Mountain Finance has a market cap of $682.5 million and is part of the financial services industry. Shares are down 4.8% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates New Mountain Finance as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 15.9%. 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 NEW MOUNTAIN FINANCE CORP is rather high; currently it is at 66.12%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 66.54% significantly outperformed against the industry average.
- Net operating cash flow has increased to -$92.43 million or 28.28% when compared to the same quarter last year. Despite an increase in cash flow of 28.28%, NEW MOUNTAIN FINANCE CORP is still growing at a significantly lower rate than the industry average of 96.60%.
- In its most recent trading session, NMFC 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. 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.
- NEW MOUNTAIN FINANCE CORP's earnings per share declined by 11.1% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, NEW MOUNTAIN FINANCE CORP reported lower earnings of $1.81 versus $2.20 in the prior year. For the next year, the market is expecting a contraction of 24.9% in earnings ($1.36 versus $1.81).
- You can view the full New Mountain Finance Ratings Report.
- The revenue growth came in higher than the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 32.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- FERRELLGAS PARTNERS -LP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, FERRELLGAS PARTNERS -LP turned its bottom line around by earning $0.68 versus -$0.14 in the prior year. This year, the market expects an improvement in earnings ($1.27 versus $0.68).
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
- The gross profit margin for FERRELLGAS PARTNERS -LP is rather low; currently it is at 17.38%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.95% trails that of the industry average.
- Net operating cash flow has significantly decreased to -$35.75 million or 191.42% 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 Ferrellgas Partners Ratings Report.
- The revenue growth came in higher than the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 10.5%. 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.
- Net operating cash flow has significantly increased by 447.70% to $37.36 million when compared to the same quarter last year. In addition, HORIZON TECHNOLOGY FINANCE has also vastly surpassed the industry average cash flow growth rate of 96.60%.
- The gross profit margin for HORIZON TECHNOLOGY FINANCE is rather high; currently it is at 64.35%. 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 -51.40% is in-line with the industry average.
- 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 on the basis of return on equity, HORIZON TECHNOLOGY FINANCE underperformed against that of the industry average and is significantly less than that of the S&P 500.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, HRZN has underperformed the S&P 500 Index, declining 5.63% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full Horizon Technology Finance Ratings Report.
- Our dividend calendar.