3 Buy-Rated Dividend Stocks: KKR, KMI, CVA - TheStreet

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 which could 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."

KKR

Dividend Yield: 8.10%

KKR

(NYSE:

KKR

) shares currently have a dividend yield of 8.10%.

Kohlberg Kravis Roberts & Co. L.P. is a private equity investment firm specializing in direct and fund of fund investments. The company has a P/E ratio of 10.54.

The average volume for KKR has been 2,922,900 shares per day over the past 30 days. KKR has a market cap of $9.2 billion and is part of the financial services industry. Shares are down 12% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

KKR

as a

buy

. Among the primary strengths of the company is its robust revenue growth -- not just in the most recent periods but in previous quarters as well. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • KKR's very impressive revenue growth greatly exceeded the industry average of 6.9%. Since the same quarter one year prior, revenues leaped by 56.7%. 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.
  • KKR & CO LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, KKR & CO LP increased its bottom line by earning $2.29 versus $2.23 in the prior year. This year, the market expects an improvement in earnings ($2.42 versus $2.29).
  • The share price of KKR & CO LP has not done very well: it is down 5.02% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 56.1% when compared to the same quarter one year ago, falling from $204.74 million to $89.94 million.

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Kinder Morgan

Dividend Yield: 4.60%

Kinder Morgan

(NYSE:

KMI

) shares currently have a dividend yield of 4.60%.

Kinder Morgan, Inc. operates as a midstream and energy company in North America. It operates through Natural Gas Pipelines, CO2 KMP, Products Pipelines KMP, Terminals KMP, Kinder Morgan Canada KMP, and Other segments. The company has a P/E ratio of 31.94.

The average volume for Kinder Morgan has been 15,592,400 shares per day over the past 30 days. Kinder Morgan has a market cap of $39.4 billion and is part of the energy industry. Shares are up 7.1% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

Kinder Morgan

as a

buy

. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, increase in stock price during the past year, impressive record of earnings per share growth and compelling growth in net income. 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:

  • The revenue growth came in higher than the industry average of 2.7%. Since the same quarter one year prior, revenues rose by 14.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 43.16% is the gross profit margin for KINDER MORGAN INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 7.66% is above that of the industry average.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • KINDER MORGAN INC has improved earnings per share by 18.5% 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, KINDER MORGAN INC reported lower earnings of $1.15 versus $1.22 in the prior year. This year, the market expects an improvement in earnings ($1.23 versus $1.15).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Oil, Gas & Consumable Fuels industry average. The net income increased by 15.0% when compared to the same quarter one year prior, going from $286.00 million to $329.00 million.

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Covanta

Dividend Yield: 4.60%

Covanta

(NYSE:

CVA

) shares currently have a dividend yield of 4.60%.

Covanta Holding Corporation, through its subsidiaries, provides waste and energy services to municipal entities primarily in North America. The company has a P/E ratio of 114.21.

The average volume for Covanta has been 1,315,900 shares per day over the past 30 days. Covanta has a market cap of $2.8 billion and is part of the materials & construction industry. Shares are up 23.2% year-to-date as of the close of trading on Thursday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreet Ratings rates

Covanta

as a

buy

. The company's strengths can be seen in multiple areas, such as its 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:

  • COVANTA HOLDING CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, COVANTA HOLDING CORP reported lower earnings of $0.35 versus $0.87 in the prior year. This year, the market expects an improvement in earnings ($0.45 versus $0.35).
  • CVA, with its decline in revenue, slightly underperformed the industry average of 6.7%. Since the same quarter one year prior, revenues slightly dropped by 2.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 35.51% is the gross profit margin for COVANTA HOLDING CORP which we consider to be strong. Regardless of CVA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CVA's net profit margin of 1.44% is significantly lower than the industry average.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The debt-to-equity ratio is very high at 2.80 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, CVA's quick ratio is somewhat strong at 1.13, demonstrating the ability to handle short-term liquidity needs.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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