What To Buy: Top 3 Buy-Rated Dividend Stocks: USAC, PFLT, MRCC

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

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."

USA Compression Partners

Dividend Yield: 9.40%

USA Compression Partners (NYSE: USAC) shares currently have a dividend yield of 9.40%.

USA Compression Partners, LP provides natural gas compression services under term contracts with customers in the oil and gas industry in the United States. It engineers, designs, operates, services, and repairs its compression units and maintains related support inventory and equipment. The company has a P/E ratio of 29.64.

The average volume for USA Compression Partners has been 88,400 shares per day over the past 30 days. USA Compression Partners has a market cap of $704.5 million and is part of the energy industry. Shares are up 33.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates USA Compression Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 1.6%. Since the same quarter one year prior, revenues rose by 29.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • USA COMPRESSION PRTNRS LP 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 two years. We feel that this trend should continue. During the past fiscal year, USA COMPRESSION PRTNRS LP increased its bottom line by earning $0.58 versus $0.32 in the prior year. This year, the market expects an improvement in earnings ($0.64 versus $0.58).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 192.6% when compared to the same quarter one year prior, rising from $3.92 million to $11.46 million.
  • The gross profit margin for USA COMPRESSION PRTNRS LP is currently very high, coming in at 70.44%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 17.62% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $14.51 million or 44.13% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 12.17%.

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PennantPark Floating Rate Capital

Dividend Yield: 8.10%

PennantPark Floating Rate Capital (NASDAQ: PFLT) shares currently have a dividend yield of 8.10%.

PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. The company has a P/E ratio of 10.22.

The average volume for PennantPark Floating Rate Capital has been 51,700 shares per day over the past 30 days. PennantPark Floating Rate Capital has a market cap of $210.2 million and is part of the financial services industry. Shares are up 3% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates PennantPark Floating Rate Capital as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations and increase in stock price during the past year. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • PFLT's revenue growth has slightly outpaced the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 9.2%. 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 FLOATING RT CAP is currently very high, coming in at 84.98%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, PFLT's net profit margin of 5.85% significantly trails the industry average.
  • Net operating cash flow has significantly increased by 134.92% to $12.19 million when compared to the same quarter last year. Despite an increase in cash flow of 134.92%, PENNANTPARK FLOATING RT CAP is still growing at a significantly lower rate than the industry average of 227.79%.
  • In its most recent trading session, PFLT 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • PENNANTPARK FLOATING RT CAP 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. 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, PENNANTPARK FLOATING RT CAP increased its bottom line by earning $1.38 versus $1.30 in the prior year. For the next year, the market is expecting a contraction of 11.6% in earnings ($1.22 versus $1.38).

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Monroe Capital

Dividend Yield: 9.40%

Monroe Capital (NASDAQ: MRCC) shares currently have a dividend yield of 9.40%.

Monroe Capital Corporation is a business development company specializing in senior, unitranche and junior secured debt and, to a lesser extent, unsecured debt and equity investments in middle-market companies. The fund focuses on companies with a maximum of $25 million in EBITDA per year. The company has a P/E ratio of 12.11.

The average volume for Monroe Capital has been 87,000 shares per day over the past 30 days. Monroe Capital has a market cap of $180.0 million and is part of the real estate industry. Shares are up 3.2% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Monroe Capital as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in stock price during the past year, growth in earnings per share, compelling growth in net income and expanding profit margins. 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 revenue growth greatly exceeded the industry average of 5.2%. Since the same quarter one year prior, revenues rose by 35.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • MONROE CAPITAL CORP 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 two years. We feel that this trend should continue. During the past fiscal year, MONROE CAPITAL CORP increased its bottom line by earning $1.45 versus $1.38 in the prior year. This year, the market expects an improvement in earnings ($1.62 versus $1.45).
  • 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 67.3% when compared to the same quarter one year prior, rising from $2.51 million to $4.20 million.
  • The gross profit margin for MONROE CAPITAL CORP is rather high; currently it is at 66.58%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 48.39% significantly outperformed against the industry average.

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