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." Capitala Finance Dividend Yield: 11.50% Capitala Finance (NASDAQ: CPTA) shares currently have a dividend yield of 11.50%. Capitala Finance Corp. is a Business Development Company specializing in investments in traditional mezzanine, senior subordinated and unitranche debt, second-lien loans, equity securities issued by lower and traditional middle-market companies, and small and middle-market companies. The company has a P/E ratio of 14.58. The average volume for Capitala Finance has been 142,700 shares per day over the past 30 days. Capitala Finance has a market cap of $269.1 million and is part of the financial services industry. Shares are down 8.9% year-to-date as of the close of trading on Monday. 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 Capitala Finance as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow. Highlights from the ratings report include:
- CPTA's revenue growth has slightly outpaced the industry average of 5.7%. Since the same quarter one year prior, revenues rose by 13.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for CAPITALA FINANCE CORP is rather high; currently it is at 67.33%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 70.27% significantly outperformed against the industry average.
- Compared to other companies in the Capital Markets industry and the overall market, CAPITALA FINANCE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- CPTA has underperformed the S&P 500 Index, declining 10.66% from its price level of one year ago. 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.
- Net operating cash flow has decreased to -$31.10 million or 11.23% 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 Capitala Finance Ratings Report.
- The revenue growth greatly exceeded the industry average of 5.7%. Since the same quarter one year prior, revenues rose by 36.6%. 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 WHITEHORSE FINANCE INC is rather high; currently it is at 62.14%. Regardless of WHF's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WHF's net profit margin of 42.34% significantly outperformed against the industry.
- Net operating cash flow has significantly increased by 130.10% to $11.12 million when compared to the same quarter last year. Despite an increase in cash flow of 130.10%, WHITEHORSE FINANCE INC is still growing at a significantly lower rate than the industry average of 191.30%.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Capital Markets industry average. The net income has significantly decreased by 25.1% when compared to the same quarter one year ago, falling from $6.37 million to $4.77 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, WHITEHORSE FINANCE INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full WhiteHorse Finance Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 139.0% when compared to the same quarter one year prior, rising from $3.50 million to $8.37 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.4%. Since the same quarter one year prior, revenues slightly increased by 6.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- INVESTORS REAL ESTATE TRUST has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. 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, INVESTORS REAL ESTATE TRUST swung to a loss, reporting -$0.28 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($0.08 versus -$0.28).
- The gross profit margin for INVESTORS REAL ESTATE TRUST is currently lower than what is desirable, coming in at 30.93%. Regardless of IRET's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, IRET's net profit margin of 11.39% is significantly lower than the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, INVESTORS REAL ESTATE TRUST's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Investors Real Estate Ratings Report.
- Our dividend calendar.