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

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."

BCE

Dividend Yield: 5.20%

BCE

(NYSE:

BCE

) shares currently have a dividend yield of 5.20%.

BCE Inc., a telecommunications and media company, provides wireless, wireline, Internet, and television (TV) services to residential, business, and wholesale customers in Canada. The company operates through Bell Wireless, Bell Wireline, and Bell Media segments. The company has a P/E ratio of 18.47.

The average volume for BCE has been 989,400 shares per day over the past 30 days. BCE has a market cap of $34.5 billion and is part of the telecommunications industry. Shares are down 10.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

BCE

as a

buy

. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:

  • BCE's revenue growth has slightly outpaced the industry average of 3.6%. Since the same quarter one year prior, revenues slightly increased by 2.8%. 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.
  • 48.55% is the gross profit margin for BCE 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 10.87% is above that of the industry average.
  • Net operating cash flow has slightly increased to $1,045.00 million or 6.41% when compared to the same quarter last year. In addition, BCE INC has also modestly surpassed the industry average cash flow growth rate of -0.86%.
  • 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. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, BCE INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • BCE INC's earnings per share declined by 20.3% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, BCE INC increased its bottom line by earning $2.97 versus $2.54 in the prior year.

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ALLETE

Dividend Yield: 4.20%

ALLETE

(NYSE:

ALE

) shares currently have a dividend yield of 4.20%.

ALLETE, Inc. operates as an energy company. The company operates through Regulated Operations, and Investments and Other segments. It generates electricity from coal-fired, hydro, wind, and biomass co-fired facilities. The company has a P/E ratio of 16.22.

The average volume for ALLETE has been 320,600 shares per day over the past 30 days. ALLETE has a market cap of $2.3 billion and is part of the utilities industry. Shares are down 13.1% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

ALLETE

as a

buy

. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and compelling growth in net income. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:

  • ALE's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 7.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • ALLETE INC has improved earnings per share by 6.3% 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. We feel that this trend should continue. During the past fiscal year, ALLETE INC increased its bottom line by earning $2.90 versus $2.63 in the prior year. This year, the market expects an improvement in earnings ($3.09 versus $2.90).
  • The debt-to-equity ratio is somewhat low, currently at 0.78, 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 0.47 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Electric Utilities industry average, but is greater than that of the S&P 500. The net income increased by 19.1% when compared to the same quarter one year prior, going from $33.50 million to $39.90 million.

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Telefonica

Dividend Yield: 5.90%

Telefonica

(NYSE:

TEF

) shares currently have a dividend yield of 5.90%.

Telefonica, S.A. provides fixed and mobile communication services primarily in Europe and Latin America. The company offers mobile voice, value added, mobile data and Internet, wholesale, corporate, roaming, fixed wireless, and trunking and paging services.

The average volume for Telefonica has been 1,245,700 shares per day over the past 30 days. Telefonica has a market cap of $70.6 billion and is part of the telecommunications industry. Shares are up 6.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

Telefonica

as a

buy

. The company's strengths can be seen in multiple areas, such as its increase in net income and reasonable valuation levels. We feel its 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 104.2% when compared to the same quarter one year prior, rising from $947.86 million to $1,935.53 million.
  • TELEFONICA SA's earnings per share declined by 41.2% 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 two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, TELEFONICA SA reported lower earnings of $0.70 versus $1.39 in the prior year. This year, the market expects an improvement in earnings ($1.54 versus $0.70).
  • TEF, with its decline in revenue, slightly underperformed the industry average of 4.3%. Since the same quarter one year prior, revenues fell by 12.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The share price of TELEFONICA SA has not done very well: it is down 7.73% 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.

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