3 Hold-Rated Dividend Stocks: AINV, FSC, STON

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."

Apollo Investment

Dividend Yield: 11.10%

Apollo Investment (NASDAQ: AINV) shares currently have a dividend yield of 11.10%.

Apollo Investment Corporation is business development company and operates as a closed-end management investment company. The company invests in middle market companies. It provides direct equity capital, mezzanine and senior secured loans, and subordinated debt and loans. The company has a P/E ratio of 22.53.

The average volume for Apollo Investment has been 1,259,900 shares per day over the past 30 days. Apollo Investment has a market cap of $1.7 billion and is part of the financial services industry. Shares are down 2.8% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Apollo Investment as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • AINV's revenue growth has slightly outpaced the industry average of 5.9%. Since the same quarter one year prior, revenues slightly increased by 5.9%. 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 APOLLO INVESTMENT CORP is currently very high, coming in at 71.72%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -11.48% is in-line with the industry average.
  • Net operating cash flow has significantly increased by 166.66% to $113.51 million when compared to the same quarter last year. Despite an increase in cash flow, APOLLO INVESTMENT CORP's cash flow growth rate is still lower than the industry average growth rate of 189.47%.
  • 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 Capital Markets industry and the overall market on the basis of return on equity, APOLLO INVESTMENT CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • The share price of APOLLO INVESTMENT CORP has not done very well: it is down 14.22% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.

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Fifth Street Finance Corporation

Dividend Yield: 10.70%

Fifth Street Finance Corporation (NASDAQ: FSC) shares currently have a dividend yield of 10.70%.

Fifth Street Finance Corp. The company has a P/E ratio of 8.39.

The average volume for Fifth Street Finance Corporation has been 848,400 shares per day over the past 30 days. Fifth Street Finance Corporation has a market cap of $1.0 billion and is part of the financial services industry. Shares are down 16.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Fifth Street Finance Corporation as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • The gross profit margin for FIFTH STREET FINANCE CORP is rather high; currently it is at 64.98%. Regardless of FSC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, FSC's net profit margin of 37.27% significantly outperformed against the industry.
  • Net operating cash flow has significantly increased by 161.67% to $173.18 million when compared to the same quarter last year. Despite an increase in cash flow, FIFTH STREET FINANCE CORP's cash flow growth rate is still lower than the industry average growth rate of 189.47%.
  • FSC, with its decline in revenue, underperformed when compared the industry average of 5.9%. Since the same quarter one year prior, revenues slightly dropped by 5.5%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • 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 Capital Markets industry and the overall market on the basis of return on equity, FIFTH STREET FINANCE CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Looking at the price performance of FSC's shares over the past 12 months, there is not much good news to report: the stock is down 28.58%, 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. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

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Stonemor Partners

Dividend Yield: 8.40%

Stonemor Partners (NYSE: STON) shares currently have a dividend yield of 8.40%.

StoneMor Partners L.P., together with its subsidiaries, owns and operates cemeteries in the United States. It operates through Cemetery Operations-Southeast, Cemetery Operations-Northeast, Cemetery Operations-West, and Funeral Homes segments.

The average volume for Stonemor Partners has been 91,600 shares per day over the past 30 days. Stonemor Partners has a market cap of $888.0 million and is part of the diversified services industry. Shares are up 15.8% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Stonemor Partners as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • STON's revenue growth has slightly outpaced the industry average of 0.5%. Since the same quarter one year prior, revenues slightly increased by 4.7%. 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.
  • Compared to its closing price of one year ago, STON's share price has jumped by 26.19%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • 46.53% is the gross profit margin for STONEMOR PARTNERS LP which we consider to be strong. Regardless of STON's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, STON's net profit margin of -13.17% significantly underperformed when compared to the industry average.
  • Currently the debt-to-equity ratio of 1.69 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, STON has managed to keep a strong quick ratio of 1.75, which demonstrates the ability to cover short-term cash needs.
  • 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 Diversified Consumer Services industry. The net income has significantly decreased by 2271.9% when compared to the same quarter one year ago, falling from $0.41 million to -$8.88 million.

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