What To Hold: 3 Hold-Rated Dividend Stocks SLRC, STON, DSWL

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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."

Solar Capital

Dividend Yield: 7.90%

Solar Capital (NASDAQ: SLRC) shares currently have a dividend yield of 7.90%.

Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 12.61.

The average volume for Solar Capital has been 390,000 shares per day over the past 30 days. Solar Capital has a market cap of $856.9 million and is part of the financial services industry. Shares are down 10.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Solar Capital as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and feeble growth in the company's earnings per share.

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 131515.4% when compared to the same quarter one year prior, rising from -$0.01 million to $17.08 million.
  • The gross profit margin for SOLAR CAPITAL LTD is currently very high, coming in at 70.54%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 61.00% significantly outperformed against the industry average.
  • SLRC, with its decline in revenue, underperformed when compared the industry average of 3.0%. Since the same quarter one year prior, revenues fell by 28.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • SOLAR CAPITAL LTD has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. 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, SOLAR CAPITAL LTD reported lower earnings of $1.70 versus $3.12 in the prior year. For the next year, the market is expecting a contraction of 8.2% in earnings ($1.56 versus $1.70).
  • 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. When compared to other companies in the Capital Markets industry and the overall market, SOLAR CAPITAL LTD's return on equity is below that of both the industry average and the S&P 500.

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Stonemor Partners

Dividend Yield: 9.40%

Stonemor Partners (NYSE: STON) shares currently have a dividend yield of 9.40%.

StoneMor Partners L.P., together with its subsidiaries, owns and operates cemeteries in the United States. It operates through Cemetery Operations-Southeast, Cemetery Operations-Northeast, Cemetery Operations-West, and Funeral Homes segments.

The average volume for Stonemor Partners has been 148,100 shares per day over the past 30 days. Stonemor Partners has a market cap of $754.8 million and is part of the diversified services industry. Shares are up 2.4% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Stonemor Partners as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the ratings report include:
  • STON's revenue growth has slightly outpaced the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 14.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The gross profit margin for STONEMOR PARTNERS LP is rather high; currently it is at 51.44%. 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 -0.16% is in-line with the industry average.
  • Net operating cash flow has remained constant at $9.69 million with no significant change when compared to the same quarter last year. In addition, STONEMOR PARTNERS LP has modestly surpassed the industry average cash flow growth rate of -4.02%.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Consumer Services industry and the overall market, STONEMOR PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio of 1.04 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, STON has managed to keep a strong quick ratio of 1.72, which demonstrates the ability to cover short-term cash needs.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Deswell Industries

Dividend Yield: 9.00%

Deswell Industries (NASDAQ: DSWL) shares currently have a dividend yield of 9.00%.

Deswell Industries, Inc. manufactures and sells injection-molded plastic parts and components, electronic products, assembling, and metallic parts for original equipment manufacturers and contract manufacturers.

The average volume for Deswell Industries has been 35,600 shares per day over the past 30 days. Deswell Industries has a market cap of $35.5 million and is part of the consumer non-durables industry. Shares are down 3.1% year-to-date as of the close of trading on Wednesday.

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 Deswell Industries as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and poor profit margins.

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 Electronic Equipment, Instruments & Components industry. The net income increased by 100.8% when compared to the same quarter one year prior, rising from -$1.72 million to $0.01 million.
  • DSWL 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 4.23, which clearly demonstrates the ability to cover short-term cash needs.
  • DSWL, with its decline in revenue, underperformed when compared the industry average of 3.6%. Since the same quarter one year prior, revenues fell by 19.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • DSWL has underperformed the S&P 500 Index, declining 16.28% 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.
  • 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 Electronic Equipment, Instruments & Components industry and the overall market, DESWELL INDUSTRIES INC's return on equity significantly trails that of both the industry average and the S&P 500.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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