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." TCP Capital (NASDAQ: TCPC) shares currently have a dividend yield of 8.10%. TCP Capital Corp. is a business development company specializing in direct equity and debt investments in middle-market, senior secured loans, junior loans, originated loans, mezzanine, senior debt instruments, bonds, and secondary-market investments. It seeks to invest in the United States. The company has a P/E ratio of 9.81. The average volume for TCP Capital has been 422,500 shares per day over the past 30 days. TCP Capital has a market cap of $642.9 million and is part of the financial services industry. Shares are up 6.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates TCP 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, increase in stock price during the past year 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:
- The revenue growth greatly exceeded the industry average of 5.2%. Since the same quarter one year prior, revenues rose by 34.4%. 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 net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Capital Markets industry average. The net income increased by 40.2% when compared to the same quarter one year prior, rising from $13.16 million to $18.45 million.
- The gross profit margin for TCP CAPITAL CORP is currently very high, coming in at 82.14%. Regardless of TCPC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TCPC's net profit margin of 81.38% significantly outperformed against the industry.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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 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, TCP CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full TCP Capital Ratings Report.
- Compared to its closing price of one year ago, HIHO's share price has jumped by 46.52%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HIHO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- HIHO 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 2.57, which clearly demonstrates the ability to cover short-term cash needs.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.2%. Since the same quarter one year prior, revenues slightly dropped by 2.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- HIGHWAY HOLDINGS LTD's earnings per share declined by 42.9% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, HIGHWAY HOLDINGS LTD increased its bottom line by earning $0.16 versus $0.12 in the prior year.
- You can view the full Highway Holdings Ratings Report.
- The revenue growth came in higher than the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 14.6%. 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.
- MARTIN MIDSTREAM PARTNERS LP's earnings per share declined by 29.5% in the most recent quarter compared to 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, MARTIN MIDSTREAM PARTNERS LP swung to a loss, reporting -$0.49 versus $1.33 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus -$0.49).
- The share price of MARTIN MIDSTREAM PARTNERS LP has not done very well: it is down 8.08% 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. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 29.1% when compared to the same quarter one year ago, falling from $16.64 million to $11.80 million.
- The debt-to-equity ratio is very high at 2.51 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, MMLP maintains a poor quick ratio of 0.94, which illustrates the inability to avoid short-term cash problems.
- You can view the full Martin Midstream Partners Ratings Report.
- Our dividend calendar.