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." Fifth Street Senior Floating Rate Dividend Yield: 11.80% Fifth Street Senior Floating Rate (NASDAQ: FSFR) shares currently have a dividend yield of 11.80%. Fifth Street Senior Floating Rate Corp. was incorporated in 2013 and is based in White Plains, New York. The company has a P/E ratio of 10.23. The average volume for Fifth Street Senior Floating Rate has been 147,700 shares per day over the past 30 days. Fifth Street Senior Floating Rate has a market cap of $298.5 million and is part of the financial services industry. Shares are down 1.4% year-to-date as of the close of trading on Friday. 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 Fifth Street Senior Floating Rate as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- FSFR's very impressive revenue growth greatly exceeded the industry average of 5.7%. Since the same quarter one year prior, revenues leaped by 249.1%. 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.
- The gross profit margin for FIFTH STREET SR FLTG RATE CP is currently very high, coming in at 70.70%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 55.03% significantly outperformed against the industry average.
- Net operating cash flow has increased to -$22.08 million or 45.96% when compared to the same quarter last year. Despite an increase in cash flow of 45.96%, FIFTH STREET SR FLTG RATE CP is still growing at a significantly lower rate than the industry average of 191.30%.
- FIFTH STREET SR FLTG RATE CP's earnings per share declined by 15.4% in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.18 versus $0.97).
- Looking at the price performance of FSFR's shares over the past 12 months, there is not much good news to report: the stock is down 29.51%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- You can view the full Fifth Street Senior Floating Rate Ratings Report.