What To Hold: 3 Hold-Rated Dividend Stocks WHF, TSLX, PNNT

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."

WhiteHorse Finance

Dividend Yield: 13.30%

WhiteHorse Finance (NASDAQ: WHF) shares currently have a dividend yield of 13.30%.

Whitehorse Finance, LLC is a business development company. The company has a P/E ratio of 7.23.

The average volume for WhiteHorse Finance has been 26,800 shares per day over the past 30 days. WhiteHorse Finance has a market cap of $195.9 million and is part of the financial services industry. Shares are down 4.4% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates WhiteHorse Finance as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and increase in net income. 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 greatly exceeded the industry average of 24.5%. Since the same quarter one year prior, revenues rose by 19.0%. 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 WHITEHORSE FINANCE INC is rather high; currently it is at 64.71%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 41.25% significantly outperformed against the industry average.
  • Net operating cash flow has significantly decreased to -$4.76 million or 142.83% when compared to the same quarter last year. Despite a decrease in cash flow of 142.83%, WHITEHORSE FINANCE INC is still significantly exceeding the industry average of -198.08%.
  • 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, WHITEHORSE FINANCE INC's return on equity significantly trails that of both the industry average and the S&P 500.

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TPG Specialty Lending

Dividend Yield: 9.60%

TPG Specialty Lending (NYSE: TSLX) shares currently have a dividend yield of 9.60%.

TPG Specialty Lending, Inc. is a business development company. The company has a P/E ratio of 9.21.

The average volume for TPG Specialty Lending has been 144,800 shares per day over the past 30 days. TPG Specialty Lending has a market cap of $969.0 million and is part of the real estate industry. Shares are up 0.6% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates TPG Specialty Lending as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, deteriorating net income and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 24.5%. Since the same quarter one year prior, revenues rose by 13.3%. 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 TPG SPECIALTY LENDING INC is rather high; currently it is at 67.66%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 41.56% significantly outperformed against the industry average.
  • The share price of TPG SPECIALTY LENDING INC has not done very well: it is down 9.94% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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 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, TPG SPECIALTY LENDING INC's return on equity is below that of both the industry average and the S&P 500.

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Pennant Park Investment

Dividend Yield: 16.90%

Pennant Park Investment (NASDAQ: PNNT) shares currently have a dividend yield of 16.90%.

PennantPark Investment Corporation is a business development firm specializing in direct and mezzanine investments in middle market companies. It invests in the form of mezzanine debt, senior secured loans, and equity investments. The company has a P/E ratio of 3.99.

The average volume for Pennant Park Investment has been 332,500 shares per day over the past 30 days. Pennant Park Investment has a market cap of $471.1 million and is part of the financial services industry. Shares are up 9.7% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Pennant Park Investment 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 PENNANTPARK INVESTMENT CORP is currently very high, coming in at 71.02%. 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 10.09% trails the industry average.
  • Despite the weak revenue results, PNNT has outperformed against the industry average of 24.5%. Since the same quarter one year prior, revenues slightly dropped by 8.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • PENNANTPARK INVESTMENT CORP's earnings per share declined by 40.0% 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. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PENNANTPARK INVESTMENT CORP swung to a loss, reporting -$0.13 versus $1.66 in the prior year. This year, the market expects an improvement in earnings ($1.03 versus -$0.13).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Capital Markets industry. The net income has significantly decreased by 46.5% when compared to the same quarter one year ago, falling from $7.38 million to $3.95 million.
  • 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, PENNANTPARK INVESTMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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