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."KCAP Financial Dividend Yield: 14.10% KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 14.10%. 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 13.84. The average volume for KCAP Financial has been 248,200 shares per day over the past 30 days. KCAP Financial has a market cap of $219.3 million and is part of the financial services industry. Shares are down 12.8% year-to-date as of the close of trading on Thursday. EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE. TheStreet Ratings rates KCAP Financial as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 4.4%. Since the same quarter one year prior, revenues slightly increased by 2.5%. 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 KCAP FINANCIAL INC is currently very high, coming in at 78.32%. 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 -83.92% is in-line with the industry average.
- KCAP FINANCIAL INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, KCAP FINANCIAL INC reported lower earnings of $0.43 versus $0.53 in the prior year. This year, the market expects an improvement in earnings ($0.63 versus $0.43).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 665.2% when compared to the same quarter one year ago, falling from $1.57 million to -$8.90 million.
- 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, KCAP FINANCIAL INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full KCAP Financial Ratings Report.
- The gross profit margin for AMERICAN CAPITAL MTG INV CP is currently very high, coming in at 77.78%. Regardless of MTGE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MTGE's net profit margin of 30.64% compares favorably to the industry average.
- MTGE, with its decline in revenue, underperformed when compared the industry average of 9.8%. Since the same quarter one year prior, revenues fell by 17.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The share price of AMERICAN CAPITAL MTG INV CP has not done very well: it is down 11.42% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 36.3% when compared to the same quarter one year ago, falling from $48.76 million to $31.06 million.
- You can view the full American Capital Mortgage Investment Ratings Report.
- HTGC's revenue growth has slightly outpaced the industry average of 4.4%. Since the same quarter one year prior, revenues rose by 11.0%. 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 HERCULES TECH GROWTH CAP INC is currently very high, coming in at 78.47%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, HTGC's net profit margin of 55.95% significantly outperformed against the industry.
- In its most recent trading session, HTGC has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Capital Markets industry average. The net income has decreased by 17.1% when compared to the same quarter one year ago, dropping from $24.90 million to $20.64 million.
- Net operating cash flow has significantly decreased to $7.58 million or 92.33% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Hercules Technology Growth Capital Ratings Report.
- Our dividend calendar.