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."KCAP Financial Dividend Yield: 13.80% KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 13.80%. KCAP Financial, Inc. is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies. The company has a P/E ratio of 11.47. The average volume for KCAP Financial has been 235,400 shares per day over the past 30 days. KCAP Financial has a market cap of $224.2 million and is part of the financial services industry. Shares are down 10.8% 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 KCAP Financial as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 23.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for KCAP FINANCIAL INC is currently very high, coming in at 76.76%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 62.15% significantly outperformed against the industry average.
- KCAP FINANCIAL INC 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, KCAP FINANCIAL INC reported lower earnings of $0.43 versus $0.53 in the prior year. This year, the market expects an improvement in earnings ($0.71 versus $0.43).
- KCAP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 26.66%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- Net operating cash flow has significantly decreased to -$6.56 million or 166.57% 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 KCAP Financial Ratings Report.
- ABR's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 10.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARBOR REALTY TRUST INC's return on equity exceeds that of both the industry average and the S&P 500.
- ARBOR REALTY TRUST INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ARBOR REALTY TRUST INC increased its bottom line by earning $1.71 versus $0.41 in the prior year. For the next year, the market is expecting a contraction of 54.4% in earnings ($0.78 versus $1.71).
- In its most recent trading session, ABR 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 fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has significantly decreased to $2.27 million or 50.31% 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 Arbor Realty 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 Management & Development industry. The net income increased by 111.1% when compared to the same quarter one year prior, rising from $44.95 million to $94.90 million.
- GZT's revenue growth trails the industry average of 17.9%. Since the same quarter one year prior, revenues slightly increased by 6.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- GAZIT GLOBE reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, GAZIT GLOBE reported lower earnings of $0.10 versus $1.51 in the prior year.
- The debt-to-equity ratio is very high at 5.32 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, GZT maintains a poor quick ratio of 0.73, which illustrates the inability to avoid short-term cash problems.
- 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 Management & Development industry and the overall market on the basis of return on equity, GAZIT GLOBE underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Gazit-Globe Ratings Report.
- Our dividend calendar.