3 Buy-Rated Dividend Stocks Taking The Lead: OFS, MRCC, HRZN

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 "Buy."

OFS Capital

Dividend Yield: 10.40%

OFS Capital (NASDAQ: OFS) shares currently have a dividend yield of 10.40%.

OFS Capital Corporation is a business development company specializing in direct and fund investments. For direct, it specializes in debt and structured equity investments in lower middle market companies. The fund invests in companies based in United States. The company has a P/E ratio of 6.90.

The average volume for OFS Capital has been 59,500 shares per day over the past 30 days. OFS Capital has a market cap of $126.5 million and is part of the financial services industry. Shares are up 16.3% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates OFS Capital as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, expanding profit margins, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 23.7%. Since the same quarter one year prior, revenues slightly increased by 2.9%. 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 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 Capital Markets industry and the overall market, OFS CAPITAL CORP's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for OFS CAPITAL CORP is rather high; currently it is at 63.90%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 29.05% significantly outperformed against the industry average.
  • Net operating cash flow has significantly increased by 82.56% to $12.80 million when compared to the same quarter last year. In addition, OFS CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of -199.57%.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

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Monroe Capital

Dividend Yield: 9.30%

Monroe Capital (NASDAQ: MRCC) shares currently have a dividend yield of 9.30%.

Monroe Capital Corporation is a business development company specializing in senior, unitranche and junior secured debt and, to a lesser extent, unsecured debt and equity investments in middle-market companies. The fund focuses on companies with a maximum of $25 million in EBITDA per year. The company has a P/E ratio of 12.23.

The average volume for Monroe Capital has been 63,000 shares per day over the past 30 days. Monroe Capital has a market cap of $195.6 million and is part of the real estate industry. Shares are up 15.5% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Monroe Capital as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 23.7%. Since the same quarter one year prior, revenues rose by 42.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • MONROE CAPITAL CORP has improved earnings per share by 48.8% 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 two years. We feel that this trend should continue. During the past fiscal year, MONROE CAPITAL CORP increased its bottom line by earning $1.55 versus $1.45 in the prior year. This year, the market expects an improvement in earnings ($1.68 versus $1.55).
  • 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 105.0% when compared to the same quarter one year prior, rising from $3.88 million to $7.94 million.
  • Net operating cash flow has significantly increased by 102.66% to $0.40 million when compared to the same quarter last year. In addition, MONROE CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of -199.57%.
  • The gross profit margin for MONROE CAPITAL CORP is rather high; currently it is at 64.81%. Regardless of MRCC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MRCC's net profit margin of 68.84% significantly outperformed against the industry.

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Horizon Technology Finance

Dividend Yield: 10.80%

Horizon Technology Finance (NASDAQ: HRZN) shares currently have a dividend yield of 10.80%.

Horizon Technology Finance Corporation is a business development company specializing in lending and and investing in development-stage investments. The company has a P/E ratio of 38.85.

The average volume for Horizon Technology Finance has been 57,400 shares per day over the past 30 days. Horizon Technology Finance has a market cap of $148.0 million and is part of the financial services industry. Shares are up 9.9% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Horizon Technology Finance as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 23.7%. Since the same quarter one year prior, revenues rose by 27.9%. 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.
  • Net operating cash flow has increased to $6.28 million or 15.34% when compared to the same quarter last year. In addition, HORIZON TECHNOLOGY FINANCE has also vastly surpassed the industry average cash flow growth rate of -199.57%.
  • The gross profit margin for HORIZON TECHNOLOGY FINANCE is rather high; currently it is at 63.79%. 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 15.02% trails the industry average.
  • After a year of stock price fluctuations, the net result is that HRZN'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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • HORIZON TECHNOLOGY FINANCE 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 suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, HORIZON TECHNOLOGY FINANCE reported lower earnings of $1.06 versus $1.60 in the prior year. This year, the market expects an improvement in earnings ($1.41 versus $1.06).

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