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

Legacy Reserves

Dividend Yield: 8.70%

Legacy Reserves

(NASDAQ:

LGCY

) shares currently have a dividend yield of 8.70%.

Legacy Reserves LP, an independent oil and natural gas limited partnership, engages in the acquisition and development of oil and natural gas properties primarily located in the Permian Basin, Mid-Continent, and Rocky Mountain regions of the United States. The company has a P/E ratio of 18.71. Currently there are 9 analysts that rate Legacy Reserves a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Legacy Reserves has been 345,100 shares per day over the past 30 days. Legacy Reserves has a market cap of $1.5 billion and is part of the energy industry. Shares are up 10.2% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Legacy Reserves as a

buy

. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • LGCY's very impressive revenue growth greatly exceeded the industry average of 3.0%. Since the same quarter one year prior, revenues leaped by 264.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 103.2% when compared to the same quarter one year prior, rising from -$58.52 million to $1.87 million.
  • 46.10% is the gross profit margin for LEGACY RESERVES LP which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.97% trails the industry average.
  • LEGACY RESERVES LP reported significant earnings per share improvement 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, LEGACY RESERVES LP reported lower earnings of $1.43 versus $1.71 in the prior year. This year, the market expects an improvement in earnings ($1.46 versus $1.43).
  • LGCY has underperformed the S&P 500 Index, declining 9.71% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.

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.

Simulations Plus

Dividend Yield: 13.60%

Simulations Plus

(NASDAQ:

SLP

) shares currently have a dividend yield of 13.60%.

Simulations Plus, Inc. designs and develops pharmaceutical simulation software for use in the pharmaceutical research and in the education of pharmacy and medical students. The company has a P/E ratio of 24.29. Currently there are 2 analysts that rate Simulations Plus a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Simulations Plus has been 12,400 shares per day over the past 30 days. Simulations Plus has a market cap of $66.2 million and is part of the computer software & services industry. Shares are down 7.7% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Simulations Plus 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, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • SLP's revenue growth trails the industry average of 15.4%. Since the same quarter one year prior, revenues slightly increased by 1.9%. 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.
  • SLP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 18.12, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for SIMULATIONS PLUS INC is currently very high, coming in at 91.60%. Regardless of SLP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SLP's net profit margin of 25.63% significantly outperformed against the industry.
  • SIMULATIONS PLUS INC's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, SIMULATIONS PLUS INC increased its bottom line by earning $0.17 versus $0.16 in the prior year. This year, the market expects an improvement in earnings ($0.18 versus $0.17).
  • 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. Compared to other companies in the Health Care Technology industry and the overall market, SIMULATIONS PLUS INC's return on equity exceeds that of both the industry average and the S&P 500.

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.

Ituran Location and Control

Dividend Yield: 8.10%

Ituran Location and Control

(NASDAQ:

ITRN

) shares currently have a dividend yield of 8.10%.

Ituran Location and Control Ltd., together with its subsidiaries, provides location-based services and wireless communication products in Israel, Brazil, Argentina, and the United States. The company has a P/E ratio of 17.45. Currently there are no analysts that rate Ituran Location and Control a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Ituran Location and Control has been 19,000 shares per day over the past 30 days. Ituran Location and Control has a market cap of $385.0 million and is part of the telecommunications industry. Shares are up 20.3% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Ituran Location and Control as a

buy

. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • ITURAN LOCATION & CONTROL reported significant earnings per share improvement 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. During the past fiscal year, ITURAN LOCATION & CONTROL increased its bottom line by earning $1.18 versus $1.01 in the prior year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 178.4% when compared to the same quarter one year prior, rising from $1.58 million to $4.41 million.
  • ITRN's revenue growth trails the industry average of 14.0%. Since the same quarter one year prior, revenues slightly increased by 3.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ITRN's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.34, which illustrates the ability to avoid short-term cash problems.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Communications Equipment industry and the overall market, ITURAN LOCATION & CONTROL's return on equity significantly exceeds that of both the industry average and the S&P 500.

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.

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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.

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