Top 3 Yielding Buy-Rated Stocks: FDUS, GAIN, GLAD

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."

Fidus Investment

Dividend Yield: 9.50%

Fidus Investment (NASDAQ: FDUS) shares currently have a dividend yield of 9.50%.

Fidus Investment Corporation operates as an externally managed, closed-end, and non-diversified management investment company. The company provides customized debt and equity financing solutions to lower middle-market companies in the United States. The company has a P/E ratio of 7.17.

The average volume for Fidus Investment has been 49,100 shares per day over the past 30 days. Fidus Investment has a market cap of $257.4 million and is part of the financial services industry. Shares are up 7.1% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Fidus Investment as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, expanding profit margins and growth in earnings per share. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 5.7%. Since the same quarter one year prior, revenues rose by 21.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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 89.7% when compared to the same quarter one year prior, rising from $3.38 million to $6.41 million.
  • The gross profit margin for FIDUS INVESTMENT CORP is rather high; currently it is at 65.03%. Regardless of FDUS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, FDUS's net profit margin of 49.92% significantly outperformed against the industry.
  • FIDUS INVESTMENT CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, FIDUS INVESTMENT CORP reported lower earnings of $1.34 versus $2.01 in the prior year. This year, the market expects an improvement in earnings ($1.62 versus $1.34).
  • FDUS has underperformed the S&P 500 Index, declining 11.12% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

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Gladstone Investment

Dividend Yield: 9.60%

Gladstone Investment (NASDAQ: GAIN) shares currently have a dividend yield of 9.60%.

Gladstone Investment Corporation is a business development company specializing in buyouts. The company has a P/E ratio of 55.57.

The average volume for Gladstone Investment has been 130,500 shares per day over the past 30 days. Gladstone Investment has a market cap of $235.5 million and is part of the financial services industry. Shares are up 11% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Gladstone Investment as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, expanding profit margins, impressive record of earnings per share growth and increase in stock price during the past year. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 5.7%. Since the same quarter one year prior, revenues rose by 33.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The gross profit margin for GLADSTONE INVESTMENT CORP/DE is currently very high, coming in at 72.39%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 65.63% significantly outperformed against the industry average.
  • 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 171.0% when compared to the same quarter one year prior, rising from -$10.69 million to $7.59 million.
  • GLADSTONE INVESTMENT CORP/DE reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GLADSTONE INVESTMENT CORP/DE swung to a loss, reporting -$0.06 versus $0.63 in the prior year. This year, the market expects an improvement in earnings ($0.75 versus -$0.06).
  • In its most recent trading session, GAIN 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.

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Gladstone Capital

Dividend Yield: 10.20%

Gladstone Capital (NASDAQ: GLAD) shares currently have a dividend yield of 10.20%.

Gladstone Capital Corporation is a business development company specializing in investments in debt and equity securities. The company has a P/E ratio of 15.55.

The average volume for Gladstone Capital has been 94,900 shares per day over the past 30 days. Gladstone Capital has a market cap of $174.1 million and is part of the financial services industry. Shares are up 0.1% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Gladstone Capital as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins and growth in earnings per share. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • 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 553.9% when compared to the same quarter one year prior, rising from -$2.10 million to $9.54 million.
  • The gross profit margin for GLADSTONE CAPITAL CORP is rather high; currently it is at 65.58%. 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 103.45% significantly outperformed against the industry.
  • GLADSTONE CAPITAL CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth 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 ($0.84 versus $0.53).
  • GLAD, with its decline in revenue, slightly underperformed the industry average of 5.7%. Since the same quarter one year prior, revenues slightly dropped by 1.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • GLAD has underperformed the S&P 500 Index, declining 15.57% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

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