3 Buy-Rated Dividend Stocks Leading The Pack: PNW, PSEC, WPZ
Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.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 3 stocks with substantial yields, that ultimately, we have rated "Buy."Pinnacle West Capital Corporation (NYSE:PNW) shares currently have a dividend yield of 4.10%. Pinnacle West Capital Corporation, through its subsidiary, Arizona Public Service Company, provides retail and wholesale electric services primarily in the State of Arizona. The company has a P/E ratio of 15.05.The average volume for Pinnacle West Capital Corporation has been 983,700 shares per day over the past 30 days. Pinnacle West Capital Corporation has a market cap of $6.1 billion and is part of the utilities industry. Shares are up 4.4% year-to-date as of the close of trading on Tuesday.TheStreet Ratings rates Pinnacle West Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, reasonable valuation levels and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins.Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 0.9%. 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 debt-to-equity ratio is somewhat low, currently at 0.83, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.19 is very weak and demonstrates a lack of ability to pay short-term obligations.
- PINNACLE WEST CAPITAL CORP's earnings per share declined by 8.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PINNACLE WEST CAPITAL CORP increased its bottom line by earning $3.66 versus $3.50 in the prior year. This year, the market expects an improvement in earnings ($3.70 versus $3.66).
- Net operating cash flow has increased to $270.98 million or 12.13% when compared to the same quarter last year. Despite an increase in cash flow, PINNACLE WEST CAPITAL CORP's cash flow growth rate is still lower than the industry average growth rate of 25.33%.
- You can view the full Pinnacle West Capital Corporation Ratings Report.
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