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." WhiteHorse Finance (NASDAQ: WHF) shares currently have a dividend yield of 10.20%. Whitehorse Finance, LLC is a fund of HIG Capital LLC. The company has a P/E ratio of 9.45. The average volume for WhiteHorse Finance has been 61,700 shares per day over the past 30 days. WhiteHorse Finance has a market cap of $208.0 million and is part of the financial services industry. Shares are down 6% year-to-date as of the close of trading on Monday. TheStreet Ratings rates WhiteHorse Finance as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 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 81.6% when compared to the same quarter one year prior, rising from $3.51 million to $6.37 million.
- Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, WHITEHORSE FINANCE INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.9%. Since the same quarter one year prior, revenues slightly dropped by 1.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- WHF has underperformed the S&P 500 Index, declining 12.37% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has significantly decreased to -$36.94 million or 106.76% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full WhiteHorse Finance Ratings Report.