MLPs and crude oil trusts are not stocks and their accounting and financial reporting is sufficiently different that they should be covered separately.
The “Analysts Ratings” column of the spreadsheet should be interpreted as Buy/Outperform/Hold/Underperform/Sell.
For example: STAG with 4/3/6/1/1 would be interpreted as 4 analysts rate STAG as a BUY, 3 analysts rate STAG as OUTPERFORM, 6 rate STAG as a HOLD, 1 analyst rates STAG as UNDERPERFORM, and 1 rates STAG as a SELL. I view analysts ratings as one indicator to consider when evaluating a stock for potential investment versus a definitive metric.
The colors in the chart do have meaning. The stocks highlighted in red are equities that I personally would not currently have in my portfolio. Those stocks highlighted in yellow are stocks that I would consider including in my portfolio under the right conditions and in moderation. Investors need to understand their own appetite for risk and invest accordingly. Those stocks that are listed in green are those stocks that I now have in my portfolio, previously had in my portfolio, or would do so in the future given acceptable valuation metrics.
Readers will note that the top half of the spreadsheet above has more red and yellow. High dividend yields also often indicate there might be fundamental issues with a company’s financials or business prospects and indeed the higher dividend stocks are also at the top of the spreadsheet.
That is not to say that a high dividend is a clear and unambiguous indicator of underlying financial problems but, it should cause an investor to pause and carefully evaluate before committing money.
Rather than rely only on red/yellow/green indicators, I’ve provided a short summary and investment thesis on each stock.
Student Transportation Inc (NASDAQ:STB)
Student Transportation Inc (NASDAQ:STB) provides school bus transportation services as well as investment in oil and gas interests. The Transportation segment provides school bus and management services to public and private schools in North America. The Oil & Gas segment represents the company’s investments as a non-operator in oil and gas production in the Canadian Provinces. The company was founded by Denis J. Gallagher on May 15, 1997 and is headquartered in Barrie, Canada.
There are a couple of factors that, for me, make STB not suitable for investment at this time. First and foremost is the difficulty STB has had covering its dividend. The current payout ratio is 220% and Student Transportation Inc (NASDAQ:STB) has not covered its dividend payment for the last few quarters. I expect a dividend cut is forthcoming.
The second negative indicator for me is the company attempting operate in two widely differing types of business; school bus transportation services and investments in oil and gas production. I’m not sure I could devise two more disparate businesses under the same roof.
STB was in the portfolios of just three of the investment firms tracked by Insider Monkey on December 31, with those money managers having ownership of just 0.70% of the company’s shares. Jim Simons’ quant fund Renaissance Technologies owned most of those, with a 663,100-share position valued at $2.46 million at the end of 2015.
Gladstone Investment Corporation (NASDAQ:GAIN)
Gladstone Investment Corporation (NASDAQ:GAIN), a business development company (BDC), invests in small and medium sized companies located in the US, with EBITDA of $3 million or more, positive cash flows, strong competitive position in an industry, liquidation value of assets sufficient to cover debt, and experienced management. It makes debt investments in the form of senior debt and senior/junior subordinated debt and equity investments in the form of common equity, preferred equity warrants for buyouts/change of control, acquisition, growth and recapitalization transactions. GAIN acquires controlling interests with an investment size ranging from $5 to $30 million. It also makes co-investments and may take a seat on the board of directors.
GAIN is covering its dividend, has a very reasonable P/E of 6.3, and has very attractive dividend at 11.1% yield. On the negative side, GAIN is externally managed by a company (Gladstone Management) that also manages several other entities and therefore may not be fully aligned with shareholder interests.
In addition Gladstone Investment Corporation (NASDAQ:GAIN) is a small cap company without a credit rating which results in its cost of capital being higher than some of its better established competitors. However, this BDC may be suitable for an investor that can tolerate a higher level of risk. The high dividend reflects the risk investors have in ownership of this equity.
Follow Gladstone Investment Corporation
Follow Gladstone Investment Corporation
Harvest Capital Credit Corp (NASDAQ:HCAP)
Harvest Capital Credit Corp (NASDAQ:HCAP) is a non-diversified management investment company which provides customized financing to small and midsized businesses. HCAP’s products include senior secured debt, uni-tranche term loans, junior secured term loans, subordinated debt investments and minority equity co-investments. The company was founded by Richard Paul Buckanavage on November 14, 2012 and is headquartered in New York, NY.
A small position in HCAP might be appropriate for the more risk tolerant investors. Because it is a relatively new small cap BDC, it is inherently a riskier investment. On the positive side, the P/E is a very reasonable 12.1, it is (barely) covering its dividend, and the two analysts that cover Harvest Capital Credit Corp (NASDAQ:HCAP) have rated it as a buy. The current 10.9% dividend yield is high and reflects the additional risk that investors have in owning shares in this stock.
