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." Fidus Investment (NASDAQ: FDUS) shares currently have a dividend yield of 8.60%. Fidus Investment Corporation operates as an externally managed, closed-end, and non-diversified management investment company. The company provides customized debt and equity financing solutions to lower middle-market companies in the United States. The company has a P/E ratio of 9.28. The average volume for Fidus Investment has been 124,500 shares per day over the past 30 days. Fidus Investment has a market cap of $242.7 million and is part of the financial services industry. Shares are down 18.9% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Fidus Investment as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 2.9%. Since the same quarter one year prior, revenues slightly increased by 7.6%. 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.
- The gross profit margin for FIDUS INVESTMENT CORP is rather high; currently it is at 68.33%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 31.99% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 72.18% to -$4.76 million when compared to the same quarter last year. In addition, FIDUS INVESTMENT CORP has also vastly surpassed the industry average cash flow growth rate of -96.54%.
- 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. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, FIDUS INVESTMENT CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- FIDUS INVESTMENT CORP's earnings per share declined by 30.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, FIDUS INVESTMENT CORP increased its bottom line by earning $2.01 versus $1.91 in the prior year. For the next year, the market is expecting a contraction of 17.2% in earnings ($1.67 versus $2.01).
- You can view the full Fidus Investment Ratings Report.