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."

Duke Energy Corporation

Dividend Yield: 4.40%

Duke Energy Corporation

(NYSE:

DUK

) shares currently have a dividend yield of 4.40%.

Duke Energy Corporation, together with its subsidiaries, operates as an energy company in the United States and Latin America. It operates through three segments: Regulated Utilities, International Energy, and Commercial Power. The company has a P/E ratio of 22.33.

The average volume for Duke Energy Corporation has been 3,495,000 shares per day over the past 30 days. Duke Energy Corporation has a market cap of $51.5 billion and is part of the utilities industry. Shares are down 9.9% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Duke Energy Corporation

as a

buy

. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and increase in stock price during the past year. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • Net operating cash flow has increased to $1,439.00 million or 15.48% when compared to the same quarter last year. In addition, DUKE ENERGY CORP has also modestly surpassed the industry average cash flow growth rate of 15.12%.
  • 36.82% is the gross profit margin for DUKE ENERGY CORP which we consider to be strong. Regardless of DUK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.71% trails the industry average.
  • DUKE ENERGY CORP's earnings per share declined by 14.7% 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, DUKE ENERGY CORP reported lower earnings of $3.46 versus $3.63 in the prior year. This year, the market expects an improvement in earnings ($4.65 versus $3.46).
  • DUK, with its decline in revenue, slightly underperformed the industry average of 2.8%. Since the same quarter one year prior, revenues slightly dropped by 2.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.

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Universal

Dividend Yield: 4.20%

Universal

(NYSE:

UVV

) shares currently have a dividend yield of 4.20%.

Universal Corporation operates as a leaf tobacco merchant and processor worldwide. It engages in procuring, financing, processing, packing, storing, and shipping leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products. The company has a P/E ratio of 12.34.

The average volume for Universal has been 369,000 shares per day over the past 30 days. Universal has a market cap of $1.1 billion and is part of the tobacco industry. Shares are up 11.5% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Universal

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, reasonable valuation levels, increase in stock price during the past year and notable return on equity. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 14.7%. Since the same quarter one year prior, revenues slightly increased by 1.5%. 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 current debt-to-equity ratio, 0.34, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.30, which illustrates the ability to avoid short-term cash problems.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Tobacco industry and the overall market, UNIVERSAL CORP/VA's return on equity is significantly below that of the industry average and is below that of the S&P 500.

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RLJ Lodging

Dividend Yield: 4.60%

RLJ Lodging

(NYSE:

RLJ

) shares currently have a dividend yield of 4.60%.

RLJ Lodging Trust is an independent equity real estate investment trust. The firm also manages real estate funds. It invests in the real estate markets of the United States. The firm primarily invests in premium-branded, focused service, and compact full-service hotels. The company has a P/E ratio of 21.77.

The average volume for RLJ Lodging has been 929,200 shares per day over the past 30 days. RLJ Lodging has a market cap of $3.8 billion and is part of the real estate industry. Shares are down 13.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

RLJ Lodging

as a

buy

. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, increase in net income and notable return on equity. We feel its 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 7.1%. 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, displaying stagnant earnings per share.
  • RLJ LODGING TRUST reported flat earnings per share in the most recent quarter. 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, RLJ LODGING TRUST increased its bottom line by earning $1.05 versus $0.87 in the prior year. This year, the market expects an improvement in earnings ($1.39 versus $1.05).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income increased by 5.8% when compared to the same quarter one year prior, going from $52.90 million to $55.99 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RLJ LODGING TRUST's return on equity is below that of both the industry average and the S&P 500.

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