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."Ship Finance International (NYSE: SFL) shares currently have a dividend yield of 8.90%. Ship Finance International Limited owns and operates vessels and offshore related assets in Bermuda, Cyprus, Malta, Liberia, Norway, Singapore, the United Kingdom, and the Marshall Islands. It is also involved in the charter, purchase, and sale of assets. The company has a P/E ratio of 18.54. The average volume for Ship Finance International has been 445,900 shares per day over the past 30 days. Ship Finance International has a market cap of $1.7 billion and is part of the transportation industry. Shares are up 12% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Ship Finance International as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 27.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- SHIP FINANCE INTL LTD has improved earnings per share by 5.3% 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, SHIP FINANCE INTL LTD reported lower earnings of $1.01 versus $2.26 in the prior year. This year, the market expects an improvement in earnings ($1.28 versus $1.01).
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SHIP FINANCE INTL LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has decreased to $37.06 million or 45.49% 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 Ship Finance International Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 71029.4% when compared to the same quarter one year prior, rising from -$0.18 million to $125.55 million.
- RNO's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that RNO's debt-to-equity ratio is low, the quick ratio, which is currently 0.64, displays a potential problem in covering short-term cash needs.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, RHINO RESOURCE PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- RHINO RESOURCE PARTNERS LP 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, RHINO RESOURCE PARTNERS LP reported lower earnings of $0.33 versus $1.42 in the prior year. For the next year, the market is expecting a contraction of 160.6% in earnings (-$0.20 versus $0.33).
- You can view the full Rhino Resource Partners Ratings Report.
- GARS's very impressive revenue growth greatly exceeded the industry average of 0.1%. Since the same quarter one year prior, revenues leaped by 106.1%. Growth in the company's revenue appears to have helped boost 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 225.9% when compared to the same quarter one year prior, rising from $3.28 million to $10.68 million.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, GARRISON CAPITAL INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- GARRISON CAPITAL INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, GARRISON CAPITAL INC increased its bottom line by earning $1.42 versus $0.28 in the prior year. For the next year, the market is expecting a contraction of 12.7% in earnings ($1.24 versus $1.42).
- In its most recent trading session, GARS 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. 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 could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- You can view the full Garrison Capital Ratings Report.
- Our dividend calendar.