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." Capitala Finance Dividend Yield: 13.40% Capitala Finance (NASDAQ: CPTA) shares currently have a dividend yield of 13.40%. Capitala Finance Corp. is a Business Development Company specializing in investments in traditional mezzanine, senior subordinated and unitranche debt, second-lien loans, equity securities issued by lower and traditional middle-market companies, and small and middle-market companies. The company has a P/E ratio of 78.25. The average volume for Capitala Finance has been 64,700 shares per day over the past 30 days. Capitala Finance has a market cap of $222.7 million and is part of the financial services industry. Shares are up 16.6% 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 Capitala Finance as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself. 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 142.4% when compared to the same quarter one year ago, falling from $9.87 million to -$4.19 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, CAPITALA FINANCE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of CAPITALA FINANCE CORP has not done very well: it is down 10.26% 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. 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.
- CAPITALA FINANCE 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CAPITALA FINANCE CORP turned its bottom line around by earning $0.99 versus -$0.27 in the prior year. This year, the market expects an improvement in earnings ($1.88 versus $0.99).
- The gross profit margin for CAPITALA FINANCE CORP is currently very high, coming in at 71.32%. 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 -24.00% is in-line with the industry average.
- You can view the full Capitala Finance Ratings Report.
- SPRAGUE RESOURCES LP's earnings per share declined by 33.2% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SPRAGUE RESOURCES LP reported lower earnings of $3.69 versus $6.07 in the prior year. For the next year, the market is expecting a contraction of 32.4% in earnings ($2.50 versus $3.69).
- The debt-to-equity ratio is very high at 3.00 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SRLP maintains a poor quick ratio of 0.75, which illustrates the inability to avoid short-term cash problems.
- The share price of SPRAGUE RESOURCES LP has not done very well: it is down 6.15% 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.
- Net operating cash flow has declined marginally to $116.43 million or 4.88% when compared to the same quarter last year. Despite a decrease in cash flow SPRAGUE RESOURCES LP is still fairing well by exceeding its industry average cash flow growth rate of -49.95%.
- The gross profit margin for SPRAGUE RESOURCES LP is currently extremely low, coming in at 9.19%. 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 4.12% compares favorably to the industry average.
- You can view the full Sprague Resources Ratings Report.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 40.25%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 100.00% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- 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 Commercial Services & Supplies industry. The net income has significantly decreased by 101.0% when compared to the same quarter one year ago, falling from $2.66 million to -$0.03 million.
- The gross profit margin for CYPRESS ENERGY PARTNERS LP is currently extremely low, coming in at 10.56%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.03% trails that of the industry average.
- Net operating cash flow has decreased to $10.98 million or 18.92% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The debt-to-equity ratio is very high at 5.05 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 5.53, which shows the ability to cover short-term cash needs.
- You can view the full Cypress Energy Partners Ratings Report.
- Our dividend calendar.