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." FS Investment Dividend Yield: 8.60% FS Investment (NYSE: FSIC) shares currently have a dividend yield of 8.60%. FS Investment Corporation is a business development company specializing in investments in debt securities. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments. The company has a P/E ratio of 10.21. The average volume for FS Investment has been 776,000 shares per day over the past 30 days. FS Investment has a market cap of $2.5 billion and is part of the financial services industry. Shares are up 4.8% year-to-date as of the close of trading on Thursday. 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 FS Investment as a hold. The company's strengths can be seen in multiple areas, such as its 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 and weak operating cash flow. Highlights from the ratings report include:
- The gross profit margin for FS INVESTMENT CORP is rather high; currently it is at 63.47%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 64.82% significantly outperformed against the industry average.
- In its most recent trading session, FSIC 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.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Capital Markets industry average, but is greater than that of the S&P 500. The net income has decreased by 12.0% when compared to the same quarter one year ago, dropping from $80.06 million to $70.43 million.
- Net operating cash flow has significantly decreased to $23.21 million or 74.64% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full FS Investment Ratings Report.
- The revenue growth came in higher than the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 19.1%. 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 decreased to -$42.47 million or 80.20% 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 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 70.3% when compared to the same quarter one year ago, falling from $41.91 million to $12.42 million.
- You can view the full Altisource Residential Corporation Ratings Report.
- CMFN's very impressive revenue growth greatly exceeded the industry average of 5.7%. Since the same quarter one year prior, revenues leaped by 50.5%. 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.
- Net operating cash flow has improved to $3.67 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- When compared to other companies in the Capital Markets industry and the overall market, CM FINANCE INC's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for CM FINANCE INC is currently very high, coming in at 72.10%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, CMFN's net profit margin of -22.93% significantly underperformed when compared to the industry average.
- 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 133.5% when compared to the same quarter one year ago, falling from $5.70 million to -$1.91 million.
- You can view the full CM Finance Ratings Report.
- Our dividend calendar.