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 7.70%. 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 10.98. The average volume for Medallion Financial has been 333,300 shares per day over the past 30 days. Medallion Financial has a market cap of $312.3 million and is part of the financial services industry. Shares are down 13.5% 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 and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 8.0%. 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 59.25%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 73.33% significantly outperformed against the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the Capital Markets industry average, but is less than that of the S&P 500. The net income increased by 4.5% when compared to the same quarter one year prior, going from $6.47 million to $6.77 million.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, TAXI has underperformed the S&P 500 Index, declining 11.92% from its price level of one year ago. 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.
- MEDALLION FINANCIAL CORP's earnings per share declined by 10.0% 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, MEDALLION FINANCIAL CORP reported lower earnings of $1.16 versus $1.21 in the prior year. For the next year, the market is expecting a contraction of 2.6% in earnings ($1.13 versus $1.16).
- You can view the full Medallion Financial Ratings Report.
- The revenue growth came in higher than the industry average of 5.2%. Since the same quarter one year prior, revenues rose by 17.5%. 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.
- The gross profit margin for KCAP FINANCIAL INC is currently very high, coming in at 81.05%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.71% is above that of the industry average.
- Net operating cash flow has significantly increased by 125.25% to $9.86 million when compared to the same quarter last year. In addition, KCAP FINANCIAL INC has also vastly surpassed the industry average cash flow growth rate of 15.21%.
- KCAP FINANCIAL INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, KCAP FINANCIAL INC reported lower earnings of $0.53 versus $0.91 in the prior year. This year, the market expects an improvement in earnings ($0.99 versus $0.53).
- The share price of KCAP FINANCIAL INC has not done very well: it is down 22.19% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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 KCAP Financial Ratings Report.
- TNH 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. Along with this, the company maintains a quick ratio of 3.87, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for TERRA NITROGEN CO -LP is rather high; currently it is at 64.77%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, TNH's net profit margin of 57.90% significantly outperformed against the industry.
- TNH, with its decline in revenue, underperformed when compared the industry average of 7.1%. Since the same quarter one year prior, revenues fell by 20.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Chemicals industry and the overall market, TERRA NITROGEN CO -LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 34.37%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 34.53% compared to the year-earlier quarter. Looking ahead, the stock's sharp decline over the past year may have been what was needed in order to bring its value into alignment with its fundamentals and others in its industry.
- You can view the full Terra Nitrogen Ratings Report.
- Our dividend calendar.