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."Solar Capital Dividend Yield: 8.80% Solar Capital (NASDAQ: SLRC) shares currently have a dividend yield of 8.80%. Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 16.82. The average volume for Solar Capital has been 162,800 shares per day over the past 30 days. Solar Capital has a market cap of $771.6 million and is part of the financial services industry. Shares are down 0.1% year-to-date as of the close of trading on Tuesday. 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 Solar Capital as a hold. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, 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 SOLAR CAPITAL LTD is currently very high, coming in at 70.20%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 42.52% significantly outperformed against the industry average.
- SLRC, with its decline in revenue, underperformed when compared the industry average of 5.9%. Since the same quarter one year prior, revenues fell by 21.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- SOLAR CAPITAL LTD's earnings per share declined by 16.1% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SOLAR CAPITAL LTD reported lower earnings of $1.12 versus $1.70 in the prior year. This year, the market expects an improvement in earnings ($1.53 versus $1.12).
- Net operating cash flow has significantly decreased to -$23.67 million or 123.89% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, SLRC has underperformed the S&P 500 Index, declining 11.17% 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.
- You can view the full Solar Capital Ratings Report.
- FSFR's very impressive revenue growth greatly exceeded the industry average of 5.9%. 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 189.47%.
- 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 31.22%, 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.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market, CORPBANCA's return on equity exceeds that of both the industry average and the S&P 500.
- 49.90% is the gross profit margin for CORPBANCA which we consider to be strong. Regardless of BCA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BCA's net profit margin of 10.88% is significantly lower than the industry average.
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Commercial Banks industry average. The net income has decreased by 13.3% when compared to the same quarter one year ago, dropping from $73.03 million to $63.34 million.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, BCA has underperformed the S&P 500 Index, declining 8.91% from its price level of one year ago. 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.
- You can view the full Corpbanca Ratings Report.
- Our dividend calendar.