5 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 5 stocks with substantial yields, that ultimately, we have rated "Buy."

GlaxoSmithKline

Dividend Yield: 6.10%

GlaxoSmithKline (NYSE:GSK) shares currently have a dividend yield of 6.10%.

GlaxoSmithKline plc, together with its subsidiaries, discovers, develops, manufactures, and markets pharmaceutical products, over-the-counter medicines, and health-related consumer products worldwide. The company has a P/E ratio of 13.64. Currently there are 2 analysts that rate GlaxoSmithKline a buy, 1 analyst rates it a sell, and 8 rate it a hold.

The average volume for GlaxoSmithKline has been 2,328,400 shares per day over the past 30 days. GlaxoSmithKline has a market cap of $122.3 billion and is part of the drugs industry. Shares are up 3.8% year to date as of the close of trading on Monday.

TheStreet Ratings rates GlaxoSmithKline 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 and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

• GSK's revenue growth has slightly outpaced the industry average of 8.3%. Since the same quarter one year prior, revenues rose by 11.4%. 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 company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, GLAXOSMITHKLINE PLC's return on equity significantly exceeds that of both the industry average and the S&P 500.

• The gross profit margin for GLAXOSMITHKLINE PLC is currently very high, coming in at 73.20%. 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 11.98% trails the industry average.

• GLAXOSMITHKLINE PLC's earnings per share declined by 22.4% 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, GLAXOSMITHKLINE PLC reported lower earnings of $2.97 versus $3.21 in the prior year. This year, the market expects an improvement in earnings ($3.58 versus $2.97).

• In its most recent trading session, GSK has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.

• You can view the full GlaxoSmithKline Ratings Report.

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