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 8.50%. 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 10.05. The average volume for Medallion Financial has been 356,900 shares per day over the past 30 days. Medallion Financial has a market cap of $285.8 million and is part of the financial services industry. Shares are down 20.3% year-to-date as of the close of trading on Friday. 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:
- TAXI's revenue growth has slightly outpaced the industry average of 0.5%. 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 S&P 500 and the Capital Markets industry average. 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.
- 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, MEDALLION FINANCIAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- 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 23.66% 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.
- You can view the full Medallion Financial Ratings Report.
- The revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 18.7%. 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 CAPITAL PRODUCT PARTNERS LP is rather high; currently it is at 66.44%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 23.69% significantly outperformed against the industry average.
- Net operating cash flow has increased to $26.80 million or 49.84% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 16.72%.
- CPLP's debt-to-equity ratio of 0.76 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that CPLP's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.01 is high and demonstrates strong liquidity.
- 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. 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.
- You can view the full Capital Product Partners Ratings Report.
- Compared to its closing price of one year ago, SMTP's share price has jumped by 32.47%, 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, SMTP should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Despite its growing revenue, the company underperformed as compared with the industry average of 11.5%. Since the same quarter one year prior, revenues slightly increased by 8.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- SMTP 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 25.02, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for SMTP INC is currently very high, coming in at 82.68%. 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 14.96% trails the industry average.
- You can view the full SMTP Ratings Report.
- Our dividend calendar.