What To Hold: 3 Hold-Rated Dividend Stocks BGSF, HCAP, TCRD

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."

BG Staffing

Dividend Yield: 8.00%

BG Staffing (AMEX: BGSF) shares currently have a dividend yield of 8.00%.

BG Staffing, Inc. operates as a temporary staffing company in the United States. The company operates through three segments: Commercial, Multifamily, and Professional. The company has a P/E ratio of 17.92.

The average volume for BG Staffing has been 3,400 shares per day over the past 30 days. BG Staffing has a market cap of $92.7 million and is part of the diversified services industry. Shares are down 11.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates BG Staffing as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.

Highlights from the ratings report include:
  • BGSF's very impressive revenue growth greatly exceeded the industry average of 5.8%. Since the same quarter one year prior, revenues leaped by 55.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • BG STAFFING INC 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, BG STAFFING INC turned its bottom line around by earning $0.71 versus -$0.09 in the prior year. This year, the market expects an improvement in earnings ($1.01 versus $0.71).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Professional Services industry. The net income increased by 206.7% when compared to the same quarter one year prior, rising from $0.49 million to $1.50 million.
  • After a year of stock price fluctuations, the net result is that BGSF's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. 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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Harvest Capital Credit

Dividend Yield: 11.20%

Harvest Capital Credit (NASDAQ: HCAP) shares currently have a dividend yield of 11.20%.

Harvest Capital Credit LLC is a business development company providing structured credit to small businesses. The company has a P/E ratio of 7.36.

The average volume for Harvest Capital Credit has been 19,700 shares per day over the past 30 days. Harvest Capital Credit has a market cap of $75.4 million and is part of the financial services industry. Shares are up 0.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Harvest Capital Credit as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.9%. Since the same quarter one year prior, revenues rose by 26.9%. 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 HARVEST CAPITAL CREDIT CORP is rather high; currently it is at 62.61%. Regardless of HCAP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HCAP's net profit margin of 16.91% compares favorably to the industry average.
  • HARVEST CAPITAL CREDIT CORP 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. 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, HARVEST CAPITAL CREDIT CORP increased its bottom line by earning $1.52 versus $0.47 in the prior year. For the next year, the market is expecting a contraction of 1.6% in earnings ($1.50 versus $1.52).
  • 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 58.3% when compared to the same quarter one year ago, falling from $2.02 million to $0.84 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. When compared to other companies in the Capital Markets industry and the overall market, HARVEST CAPITAL CREDIT CORP's return on equity is below that of both the industry average and the S&P 500.

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THL Credit

Dividend Yield: 12.50%

THL Credit (NASDAQ: TCRD) shares currently have a dividend yield of 12.50%.

THL Credit, Inc. is a business development company specializing in direct and fund of fund investments. The fund seeks to invest in debt and equity securities of middle market companies. The company has a P/E ratio of 8.40.

The average volume for THL Credit has been 97,800 shares per day over the past 30 days. THL Credit has a market cap of $362.4 million and is part of the financial services industry. Shares are up 1.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates THL Credit 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 deteriorating net income, disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:
  • The gross profit margin for THL CREDIT INC is rather high; currently it is at 65.45%. 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 11.22% trails the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 1.9%. Since the same quarter one year prior, revenues slightly dropped by 0.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • THL CREDIT 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 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, THL CREDIT INC reported lower earnings of $1.07 versus $1.45 in the prior year. This year, the market expects an improvement in earnings ($1.41 versus $1.07).
  • 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 78.0% when compared to the same quarter one year ago, falling from $11.81 million to $2.59 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. When compared to other companies in the Capital Markets industry and the overall market, THL CREDIT INC's return on equity is below that of both the industry average and the S&P 500.

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