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."Resource Capital Dividend Yield: 14.80% Resource Capital (NYSE: RSO) shares currently have a dividend yield of 14.80%. Resource Capital Corp., a diversified real estate investment trust, primarily focuses on originating, holding, and managing commercial mortgage loans and other commercial real estate-related debt and equity investments in the United States. The company has a P/E ratio of 14.90. The average volume for Resource Capital has been 778,700 shares per day over the past 30 days. Resource Capital has a market cap of $555.5 million and is part of the real estate industry. Shares are down 14.3% year-to-date as of the close of trading on Tuesday. 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 Resource Capital as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 42.8%. 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 RESOURCE CAPITAL CORP is rather high; currently it is at 62.86%. Regardless of RSO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, RSO's net profit margin of 27.32% compares favorably to the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income has decreased by 11.5% when compared to the same quarter one year ago, dropping from $17.52 million to $15.49 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, RESOURCE CAPITAL CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Resource Capital Ratings Report.
- PNNT's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues rose by 13.8%. 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 PENNANTPARK INVESTMENT CORP is rather high; currently it is at 66.30%. 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 -61.07% is in-line with the industry average.
- Net operating cash flow has increased to -$61.84 million or 40.57% when compared to the same quarter last year. Despite an increase in cash flow of 40.57%, PENNANTPARK INVESTMENT CORP is still growing at a significantly lower rate than the industry average of 244.87%.
- 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 160.7% when compared to the same quarter one year ago, falling from $39.46 million to -$23.95 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Capital Markets industry and the overall market, PENNANTPARK INVESTMENT CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Pennant Park Investment Corporation Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 5.4%. Since the same quarter one year prior, revenues slightly increased by 4.0%. 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 GLADSTONE CAPITAL CORP is rather high; currently it is at 65.32%. Regardless of GLAD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GLAD's net profit margin of 3.79% is significantly lower than the industry average.
- GLADSTONE CAPITAL CORP 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, GLADSTONE CAPITAL CORP reported lower earnings of $0.53 versus $1.53 in the prior year. This year, the market expects an improvement in earnings ($0.83 versus $0.53).
- Net operating cash flow has significantly decreased to -$42.32 million or 3426.91% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The share price of GLADSTONE CAPITAL CORP has not done very well: it is down 12.36% 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. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Gladstone Capital Ratings Report.
- Our dividend calendar.