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."OHA Investment Dividend Yield: 12.90% OHA Investment (NASDAQ: OHAI) shares currently have a dividend yield of 12.90%. OHA Investment Corporation is a business development company specializing in investments in small and mid size and middle market private companies. The company has a P/E ratio of 10.31. The average volume for OHA Investment has been 46,200 shares per day over the past 30 days. OHA Investment has a market cap of $74.8 million and is part of the financial services industry. Shares are down 6.3% 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 OHA Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- OHA INVESTMENT CORP's earnings per share declined by 10.0% 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. During the past fiscal year, OHA INVESTMENT CORP swung to a loss, reporting -$1.08 versus $0.19 in the prior year.
- 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, OHA INVESTMENT CORP'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 -$20.23 million or 189.41% 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, OHAI has underperformed the S&P 500 Index, declining 22.06% 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.
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Capital Markets industry average. The net income has decreased by 9.3% when compared to the same quarter one year ago, dropping from -$6.08 million to -$6.65 million.
- You can view the full OHA Investment Ratings Report.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Looking at the price performance of RSO's shares over the past 12 months, there is not much good news to report: the stock is down 49.33%, 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. 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.
- RESOURCE CAPITAL CORP's earnings per share declined by 12.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RESOURCE CAPITAL CORP increased its bottom line by earning $1.36 versus $1.32 in the prior year. For the next year, the market is expecting a contraction of 110.7% in earnings (-$0.15 versus $1.36).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 0.1% when compared to the same quarter one year prior, going from $12.87 million to $12.89 million.
- The gross profit margin for RESOURCE CAPITAL CORP is rather high; currently it is at 65.36%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.92% is above that of the industry average.
- You can view the full Resource Capital Ratings Report.
- 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, ARC LOGISTICS PARTNERS LP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- ARCX'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 34.48%, 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. 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.
- ARCX's debt-to-equity ratio of 0.73 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.08 is sturdy.
- ARC LOGISTICS PARTNERS LP has improved earnings per share by 9.1% 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, ARC LOGISTICS PARTNERS LP reported lower earnings of $0.06 versus $0.13 in the prior year. This year, the market expects an improvement in earnings ($0.43 versus $0.06).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 22.2% when compared to the same quarter one year prior, going from $1.64 million to $2.00 million.
- You can view the full Arc Logistics Partners Ratings Report.
- Our dividend calendar.