3 Hold-Rated Dividend Stocks: ATAX, KCAP, MTGE

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 "Hold."

America First Multifamily Investors

Dividend Yield: 8.80%

America First Multifamily Investors (NASDAQ: ATAX) shares currently have a dividend yield of 8.80%.

America First Multifamily Investors, L.P. acquires, holds, sells, and deals in a portfolio of mortgage revenue bonds that have been issued to provide construction and/or permanent financing of multifamily residential apartments. The company has a P/E ratio of 29.84.

The average volume for America First Multifamily Investors has been 95,200 shares per day over the past 30 days. America First Multifamily Investors has a market cap of $341.6 million and is part of the real estate industry. Shares are up 7% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates America First Multifamily Investors as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, 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 revenue growth came in higher than the industry average of 9.5%. Since the same quarter one year prior, revenues slightly increased by 0.8%. 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.
  • Net operating cash flow has significantly increased by 121.09% to $4.17 million when compared to the same quarter last year. In addition, AMERICA FIRST MULTIFAMILY-LP has also vastly surpassed the industry average cash flow growth rate of -164.96%.
  • The gross profit margin for AMERICA FIRST MULTIFAMILY-LP is currently very high, coming in at 77.77%. Regardless of ATAX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ATAX's net profit margin of 18.96% compares favorably to the industry average.
  • 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 Thrifts & Mortgage Finance industry and the overall market on the basis of return on equity, AMERICA FIRST MULTIFAMILY-LP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • The share price of AMERICA FIRST MULTIFAMILY-LP has not done very well: it is down 5.22% 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.

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KCAP Financial

Dividend Yield: 13.70%

KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 13.70%.

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 11.60.

The average volume for KCAP Financial has been 251,500 shares per day over the past 30 days. KCAP Financial has a market cap of $226.8 million and is part of the financial services industry. Shares are down 9.8% year-to-date as of the close of trading on Wednesday.

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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 5.6%. 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 ($0.71 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.

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American Capital Mortgage Investment

Dividend Yield: 11.50%

American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 11.50%.

American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 6.44.

The average volume for American Capital Mortgage Investment has been 422,000 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $886.8 million and is part of the real estate industry. Shares are down 7.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates American Capital Mortgage Investment as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • 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 8.4%. 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 12.97% 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.

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