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." Main Street Capital Corporation (NYSE: MAIN) shares currently have a dividend yield of 6.20%. Main Street Capital Corporation is a business development company specializing in long- term equity, equity related, and debt investments in small and lower middle market companies. The company has a P/E ratio of 15.01. The average volume for Main Street Capital Corporation has been 389,800 shares per day over the past 30 days. Main Street Capital Corporation has a market cap of $1.4 billion and is part of the financial services industry. Shares are down 2.4% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Main Street Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, good cash flow from operations, increase in net income and increase in stock price during the past year. 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 0.5%. Since the same quarter one year prior, revenues rose by 20.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- The gross profit margin for MAIN STREET CAPITAL CORP is currently very high, coming in at 84.56%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 88.49% significantly outperformed against the industry average.
- Net operating cash flow has increased to -$16.73 million or 31.13% when compared to the same quarter last year. In addition, MAIN STREET CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of -97.00%.
- 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 15.3% when compared to the same quarter one year prior, going from $23.63 million to $27.23 million.
- In its most recent trading session, MAIN 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 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 Main Street Capital Corporation Ratings Report.