3 Hold-Rated Dividend Stocks: FSIC, RESI, CMFN

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."

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.

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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.

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Altisource Residential Corporation

Dividend Yield: 12.60%

Altisource Residential Corporation (NYSE: RESI) shares currently have a dividend yield of 12.60%.

Altisource Residential Corporation, through its subsidiary, Altisource Residential, L.P., focuses on acquiring, owning, and managing single-family rental properties in the United States. The company has a P/E ratio of 6.27.

The average volume for Altisource Residential Corporation has been 464,800 shares per day over the past 30 days. Altisource Residential Corporation has a market cap of $1.0 billion and is part of the real estate industry. Shares are down 9.8% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Altisource Residential Corporation as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and weak operating cash flow.

Highlights from the ratings report include:
  • 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.

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CM Finance

Dividend Yield: 10.10%

CM Finance (NASDAQ: CMFN) shares currently have a dividend yield of 10.10%.

CM Finance Inc. is a business development company. The company has a P/E ratio of 9.82.

The average volume for CM Finance has been 31,300 shares per day over the past 30 days. CM Finance has a market cap of $187.9 million and is part of the financial services industry. Shares are up 25% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates CM Finance as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive.

Highlights from the ratings report include:
  • 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.

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