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 "Sell."Fifth Street Asset Management Dividend Yield: 15.60% Fifth Street Asset Management (NASDAQ: FSAM) shares currently have a dividend yield of 15.60%. Fifth Street Asset Management Inc. is an asset management holding company. The firm provides asset management services through its subsidiaries. Fifth Street Asset Management Inc. was founded in 1998 and is headquartered in Greenwich, Connecticut. The company has a P/E ratio of 8.55. The average volume for Fifth Street Asset Management has been 30,400 shares per day over the past 30 days. Fifth Street Asset Management has a market cap of $25.2 million and is part of the financial services industry. Shares are down 68.5% 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 Asset Management as a sell. Among the areas we feel are negative, one of the most important has been unimpressive growth in net income over time. Highlights from the ratings report include:
- 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 Capital Markets industry. The net income has significantly decreased by 91.7% when compared to the same quarter one year ago, falling from $14.18 million to $1.17 million.
- 45.48% is the gross profit margin for FIFTH STREET ASSET MGMT INC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, FSAM's net profit margin of 4.69% is significantly lower than the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.6%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- This stock's share value has moved by only 70.16% over the past year.
- FIFTH STREET ASSET MGMT INC has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. This year, the market expects an improvement in earnings ($0.72 versus $0.01).
- You can view the full Fifth Street Asset Management Ratings Report.
- CROSSROADS CAPITAL INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, CROSSROADS CAPITAL INC swung to a loss, reporting -$0.09 versus $0.26 in the prior year.
- 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 Capital Markets industry. The net income has significantly decreased by 63.7% when compared to the same quarter one year ago, falling from -$3.06 million to -$5.00 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. Compared to other companies in the Capital Markets industry and the overall market, CROSSROADS CAPITAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$1.01 million or 140.60% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 26.22%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 64.51% compared to the year-earlier 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.
- You can view the full Crossroads Capital Ratings Report.
- The debt-to-equity ratio is very high at 4.05 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
- The gross profit margin for SPRAGUE RESOURCES LP is currently extremely low, coming in at 7.46%. Regardless of SRLP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SRLP's net profit margin of 1.53% compares favorably to the industry average.
- SPRAGUE RESOURCES LP 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, SPRAGUE RESOURCES LP turned its bottom line around by earning $6.07 versus -$1.25 in the prior year. For the next year, the market is expecting a contraction of 44.4% in earnings ($3.38 versus $6.07).
- SRLP, with its decline in revenue, slightly underperformed the industry average of 36.8%. Since the same quarter one year prior, revenues fell by 37.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Looking at where the stock is today compared to one year ago, we find that it is higher, and it has outperformed the rise in the S&P 500 over the same period. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- You can view the full Sprague Resources Ratings Report.
- Our dividend calendar.