4 Buy-Rated Dividend Stocks

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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 and 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 4 stocks with substantial yields, that ultimately, we have rated "Buy."

Digital Realty

Dividend Yield: 4.60%

Digital Realty (NYSE:DLR) shares currently have a dividend yield of 4.60%.

Digital Realty Trust, Inc., a real estate investment trust (REIT), through its controlling interest in Digital Realty Trust, L.P., engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. The company has a P/E ratio of 45.95. Currently there are 8 analysts that rate Digital Realty a buy, 1 analyst rates it a sell, and 7 rate it a hold.

The average volume for Digital Realty has been 1,397,600 shares per day over the past 30 days. Digital Realty has a market cap of $8.5 billion and is part of the real estate industry. Shares are up 0.6% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Digital Realty as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, compelling growth in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:

• The revenue growth came in higher than the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 29.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

• The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 19.4% when compared to the same quarter one year prior, going from $45.72 million to $54.57 million.

• DIGITAL REALTY TRUST INC has improved earnings per share by 5.9% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DIGITAL REALTY TRUST INC increased its bottom line by earning $1.47 versus $1.31 in the prior year. For the next year, the market is expecting a contraction of 0.7% in earnings ($1.46 versus $1.47).

• DLR has underperformed the S&P 500 Index, declining 5.88% from its price level of one year ago. 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 Digital Realty Ratings Report.

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