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." PennantPark Floating Rate Capital (NASDAQ: PFLT) shares currently have a dividend yield of 7.80%. PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. The company has a P/E ratio of 9.71. The average volume for PennantPark Floating Rate Capital has been 67,400 shares per day over the past 30 days. PennantPark Floating Rate Capital has a market cap of $206.9 million and is part of the financial services industry. Shares are up 1.2% year-to-date as of the close of trading on Friday. TheStreet Ratings rates PennantPark Floating Rate Capital as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- PFLT's very impressive revenue growth greatly exceeded the industry average of 5.2%. Since the same quarter one year prior, revenues leaped by 84.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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 125.7% when compared to the same quarter one year prior, rising from $3.21 million to $7.24 million.
- The gross profit margin for PENNANTPARK FLOATING RT CAP is rather high; currently it is at 61.50%. Regardless of PFLT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PFLT's net profit margin of 94.93% significantly outperformed against the industry.
- 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. When compared to other companies in the Capital Markets industry and the overall market, PENNANTPARK FLOATING RT CAP's return on equity is below that of both the industry average and the S&P 500.
- PENNANTPARK FLOATING RT CAP has improved earnings per share by 8.9% 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, PENNANTPARK FLOATING RT CAP reported lower earnings of $1.30 versus $1.75 in the prior year. For the next year, the market is expecting a contraction of 18.8% in earnings ($1.06 versus $1.30).
- You can view the full PennantPark Floating Rate Capital Ratings Report.
- The revenue growth came in higher than the industry average of 3.0%. Since the same quarter one year prior, revenues rose by 13.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- VOC 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.
- 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. 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.
- The net income growth from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income increased by 15.2% when compared to the same quarter one year prior, going from $7.82 million to $9.01 million.
- The gross profit margin for VOC ENERGY TRUST is currently very high, coming in at 100.00%. VOC has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, VOC's net profit margin of 99.49% significantly outperformed against the industry.
- You can view the full VOC Energy Ratings Report.
- 46.05% is the gross profit margin for COMPRESSCO PARTNERS LP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 15.49% is above that of the industry average.
- COMPRESSCO PARTNERS LP reported flat earnings per share in the most recent quarter. 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, COMPRESSCO PARTNERS LP increased its bottom line by earning $1.11 versus $1.04 in the prior year. This year, the market expects an improvement in earnings ($1.41 versus $1.11).
- GSJK, with its decline in revenue, underperformed when compared the industry average of 11.2%. Since the same quarter one year prior, revenues slightly dropped by 3.1%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 1.8% when compared to the same quarter one year prior, going from $4.54 million to $4.62 million.
- You can view the full Compressco Partners Ratings Report.
- Our dividend calendar.