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: 8.40% Solar Capital (NASDAQ: SLRC) shares currently have a dividend yield of 8.40%. Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 17.55. The average volume for Solar Capital has been 166,300 shares per day over the past 30 days. Solar Capital has a market cap of $804.7 million and is part of the financial services industry. Shares are up 5.3% 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 Solar Capital as a hold. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- The gross profit margin for SOLAR CAPITAL LTD is currently very high, coming in at 70.20%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 42.52% significantly outperformed against the industry average.
- SLRC, with its decline in revenue, underperformed when compared the industry average of 5.2%. Since the same quarter one year prior, revenues fell by 21.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- SOLAR CAPITAL LTD's earnings per share declined by 16.1% in the most recent quarter compared to 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, SOLAR CAPITAL LTD reported lower earnings of $1.12 versus $1.70 in the prior year. This year, the market expects an improvement in earnings ($1.54 versus $1.12).
- Net operating cash flow has significantly decreased to -$23.67 million or 123.89% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, SLRC has underperformed the S&P 500 Index, declining 11.91% from its price level of one year ago. 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 Solar Capital Ratings Report.