What To Hold: 3 Hold-Rated Dividend Stocks TAXI, PFLT, NVEC

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."

Medallion Financial

Dividend Yield: 11.50%

Medallion Financial (NASDAQ: TAXI) shares currently have a dividend yield of 11.50%.

Medallion Financial Corp., through its subsidiaries, operates as a specialty finance company in the United States. The company engages in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. The company has a P/E ratio of 7.03.

The average volume for Medallion Financial has been 162,800 shares per day over the past 30 days. Medallion Financial has a market cap of $212.3 million and is part of the financial services industry. Shares are up 24.4% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Medallion Financial as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • The gross profit margin for MEDALLION FINANCIAL CORP is rather high; currently it is at 62.25%. It has increased significantly from the same period last year. Along with this, the net profit margin of 73.89% significantly outperformed against the industry average.
  • TAXI, with its decline in revenue, slightly underperformed the industry average of 4.5%. Since the same quarter one year prior, revenues fell by 13.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • MEDALLION FINANCIAL 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, MEDALLION FINANCIAL CORP increased its bottom line by earning $1.20 versus $1.14 in the prior year. For the next year, the market is expecting a contraction of 2.1% in earnings ($1.18 versus $1.20).
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, TAXI has underperformed the S&P 500 Index, declining 16.56% 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.

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PennantPark Floating Rate Capital

Dividend Yield: 9.90%

PennantPark Floating Rate Capital (NASDAQ: PFLT) shares currently have a dividend yield of 9.90%.

PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. The company has a P/E ratio of 8.32.

The average volume for PennantPark Floating Rate Capital has been 131,000 shares per day over the past 30 days. PennantPark Floating Rate Capital has a market cap of $306.9 million and is part of the financial services industry. Shares are up 2.1% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates PennantPark Floating Rate Capital as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, 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 4.5%. Since the same quarter one year prior, revenues rose by 17.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 298.9% when compared to the same quarter one year prior, rising from $0.44 million to $1.75 million.
  • PENNANTPARK FLOATING RT CAP 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, PENNANTPARK FLOATING RT CAP reported lower earnings of $0.82 versus $1.38 in the prior year. This year, the market expects an improvement in earnings ($1.03 versus $0.82).
  • 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. When compared to other companies in the Capital Markets industry and the overall market, PENNANTPARK FLOATING RT CAP's return on equity is below that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$66.48 million or 645.14% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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NVE

Dividend Yield: 7.60%

NVE (NASDAQ: NVEC) shares currently have a dividend yield of 7.60%.

NVE Corporation develops and sells devices using spintronics, a nanotechnology that utilizes electron spin rather than electron charge to acquire, store, and transmit information. The company has a P/E ratio of 17.99.

The average volume for NVE has been 16,800 shares per day over the past 30 days. NVE has a market cap of $254.5 million and is part of the electronics industry. Shares are down 4.8% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates NVE as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • NVEC has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 18.40, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has slightly increased to $4.06 million or 5.45% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.28%.
  • 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 Semiconductors & Semiconductor Equipment industry and the overall market on the basis of return on equity, NVE CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • NVE CORP's earnings per share declined by 7.0% 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, NVE CORP increased its bottom line by earning $2.95 versus $2.29 in the prior year. For the next year, the market is expecting a contraction of 14.6% in earnings ($2.52 versus $2.95).
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, NVEC has underperformed the S&P 500 Index, declining 16.66% 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.

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