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 "Buy."

KCAP Financial

Dividend Yield: 13.30%

KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 13.30%.

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 15.02.

The average volume for KCAP Financial has been 311,000 shares per day over the past 30 days. KCAP Financial has a market cap of $253.2 million and is part of the financial services industry. Shares are down 6.3% year-to-date as of the close of trading on Tuesday.

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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 6.9%. 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 -127.80%.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Capital Markets industry average. 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 ($0.97 versus $0.53).

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Horizon Technology Finance

Dividend Yield: 9.90%

Horizon Technology Finance (NASDAQ: HRZN) shares currently have a dividend yield of 9.90%.

Horizon Technology Finance Corporation, a specialty finance company, lends to and invests in development-stage companies in the United States. The company has a P/E ratio of 19.26.

The average volume for Horizon Technology Finance has been 44,600 shares per day over the past 30 days. Horizon Technology Finance has a market cap of $133.5 million and is part of the financial services industry. Shares are down 1.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Horizon Technology Finance as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, expanding profit margins, good cash flow from operations, impressive record of earnings per share growth and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

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 112.1% when compared to the same quarter one year prior, rising from $1.15 million to $2.44 million.
  • The gross profit margin for HORIZON TECHNOLOGY FINANCE is rather high; currently it is at 64.35%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.99% is above that of the industry average.
  • Net operating cash flow has significantly increased by 96.68% to $7.42 million when compared to the same quarter last year. In addition, HORIZON TECHNOLOGY FINANCE has also vastly surpassed the industry average cash flow growth rate of -127.80%.
  • HORIZON TECHNOLOGY FINANCE reported significant earnings per share improvement 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, HORIZON TECHNOLOGY FINANCE reported lower earnings of $0.37 versus $0.56 in the prior year. This year, the market expects an improvement in earnings ($1.11 versus $0.37).
  • HRZN, with its decline in revenue, slightly underperformed the industry average of 6.9%. Since the same quarter one year prior, revenues slightly dropped by 1.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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San Juan Basin Royalty

Dividend Yield: 7.10%

San Juan Basin Royalty (NYSE: SJT) shares currently have a dividend yield of 7.10%.

San Juan Basin Royalty Trust operates as an express trust. The company has a 75% net overriding royalty interest carved out of Burlington's oil and gas leasehold interests (the underlying properties) in properties located in the San Juan Basin in northwestern New Mexico. The company has a P/E ratio of 13.00.

The average volume for San Juan Basin Royalty has been 83,900 shares per day over the past 30 days. San Juan Basin Royalty has a market cap of $792.3 million and is part of the energy industry. Shares are up 4.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates San Juan Basin Royalty as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, compelling growth in net income and impressive record of earnings per share growth. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • SJT's very impressive revenue growth greatly exceeded the industry average of 2.7%. Since the same quarter one year prior, revenues leaped by 190.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SJT 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 2.54, which clearly demonstrates the ability to cover short-term cash needs.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, SAN JUAN BASIN ROYALTY TR's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 219.9% when compared to the same quarter one year prior, rising from $5.54 million to $17.71 million.
  • SAN JUAN BASIN ROYALTY TR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, SAN JUAN BASIN ROYALTY TR increased its bottom line by earning $0.78 versus $0.71 in the prior year.

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