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." KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 12.40%. KCAP Financial, Inc. is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies. The company has a P/E ratio of 16.16. The average volume for KCAP Financial has been 319,400 shares per day over the past 30 days. KCAP Financial has a market cap of $272.5 million and is part of the financial services industry. Shares are down 0.2% year-to-date as of the close of trading on Friday. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. TheStreet Ratings rates KCAP Financial 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 growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 2.8%. Since the same quarter one year prior, revenues rose by 17.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for KCAP FINANCIAL INC is currently very high, coming in at 82.71%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 92.70% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 141.63% to $6.02 million when compared to the same quarter last year. In addition, KCAP FINANCIAL INC has also vastly surpassed the industry average cash flow growth rate of -89.49%.
- 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 43.6% when compared to the same quarter one year prior, rising from $8.53 million to $12.25 million.
- KCAP FINANCIAL INC has improved earnings per share by 36.0% 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, KCAP FINANCIAL INC reported lower earnings of $0.53 versus $0.91 in the prior year. This year, the market expects an improvement in earnings ($0.98 versus $0.53).
- You can view the full KCAP Financial Ratings Report.