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."PennantPark Floating Rate Capital Dividend Yield: 9.00% PennantPark Floating Rate Capital (NASDAQ: PFLT) shares currently have a dividend yield of 9.00%. 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 9.18. The average volume for PennantPark Floating Rate Capital has been 75,300 shares per day over the past 30 days. PennantPark Floating Rate Capital has a market cap of $338.7 million and is part of the financial services industry. Shares are up 12.5% year-to-date as of the close of trading on Wednesday. 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 PennantPark Floating Rate Capital as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 13.7%. Since the same quarter one year prior, revenues rose by 42.1%. 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 PENNANTPARK FLOATING RT CAP is currently very high, coming in at 73.92%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 21.46% is above that of the industry average.
- PENNANTPARK FLOATING RT CAP 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 two years. However, we anticipate this trend to reverse over 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 ($1.00 versus $0.82).
- 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 60.2% when compared to the same quarter one year ago, falling from $6.13 million to $2.44 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, PENNANTPARK FLOATING RT CAP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full PennantPark Floating Rate Capital Ratings Report.
- The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.31, which illustrates the ability to avoid short-term cash problems.
- 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.
- 37.08% is the gross profit margin for SILICONWARE PRECISION INDS which we consider to be strong. Regardless of SPIL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.31% trails the industry average.
- SPIL, with its decline in revenue, underperformed when compared the industry average of 14.8%. Since the same quarter one year prior, revenues slightly dropped by 9.9%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full Siliconware Precision Industries Ratings Report.
- The revenue growth came in higher than the industry average of 13.7%. 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.
- Net operating cash flow has significantly increased by 52.07% to -$37.02 million when compared to the same quarter last year. Despite an increase in cash flow, TPG SPECIALTY LENDING INC's cash flow growth rate is still lower than the industry average growth rate of 100.83%.
- TPG SPECIALTY LENDING INC's earnings per share declined by 28.9% in the most recent quarter compared to 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, TPG SPECIALTY LENDING INC reported lower earnings of $1.17 versus $1.73 in the prior year. This year, the market expects an improvement in earnings ($1.69 versus $1.17).
- After a year of stock price fluctuations, the net result is that TSLX'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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full TPG Specialty Lending Ratings Report.
- Our dividend calendar.