3 Buy-Rated Dividend Stocks

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."

Energy Transfer Partners L.P

Dividend Yield: 7.60%

Energy Transfer Partners L.P (NYSE: ETP) shares currently have a dividend yield of 7.60%.

Energy Transfer Partners, L.P. engages in the natural gas midstream, and intrastate transportation and storage businesses in the United States. The company has a P/E ratio of 10.66. Currently there are 6 analysts that rate Energy Transfer Partners L.P a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for Energy Transfer Partners L.P has been 1,527,500 shares per day over the past 30 days. Energy Transfer Partners L.P has a market cap of $14.3 billion and is part of the energy industry. Shares are up 10% year to date as of the close of trading on Friday.

TheStreet Ratings rates Energy Transfer Partners L.P as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, attractive valuation levels, notable return on equity and impressive record of earnings per share growth. 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:
  • ETP's very impressive revenue growth greatly exceeded the industry average of 3.0%. Since the same quarter one year prior, revenues leaped by 503.5%. 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 48.5% when compared to the same quarter one year prior, rising from $206.78 million to $307.00 million.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, ENERGY TRANSFER PARTNERS -LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • ENERGY TRANSFER PARTNERS -LP 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ENERGY TRANSFER PARTNERS -LP increased its bottom line by earning $6.74 versus $2.17 in the prior year. For the next year, the market is expecting a contraction of 69.6% in earnings ($2.05 versus $6.74).

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Pepco Holdings

Dividend Yield: 5.20%

Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 5.20%.

Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. The company has a P/E ratio of 16.81. Currently there are 2 analysts that rate Pepco Holdings a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for Pepco Holdings has been 2,131,300 shares per day over the past 30 days. Pepco Holdings has a market cap of $4.8 billion and is part of the utilities industry. Shares are up 6.4% year to date as of the close of trading on Friday.

TheStreet Ratings rates Pepco Holdings as a buy. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, increase in net income, good cash flow from operations, growth in earnings per share and notable return on equity. 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:
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 126.3% when compared to the same quarter one year prior, rising from $19.00 million to $43.00 million.
  • Net operating cash flow has increased to $173.00 million or 11.61% when compared to the same quarter last year. In addition, PEPCO HOLDINGS INC has also modestly surpassed the industry average cash flow growth rate of 5.45%.
  • PEPCO HOLDINGS INC 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, PEPCO HOLDINGS INC increased its bottom line by earning $1.24 versus $1.14 in the prior year. For the next year, the market is expecting a contraction of 7.3% in earnings ($1.15 versus $1.24).
  • POM, with its decline in revenue, underperformed when compared the industry average of 14.9%. Since the same quarter one year prior, revenues slightly dropped by 9.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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Colony Financial

Dividend Yield: 6.30%

Colony Financial (NYSE: CLNY) shares currently have a dividend yield of 6.30%.

Colony Financial, Inc. operates as a real estate finance and investment company that focuses primarily on acquiring, originating, and managing commercial mortgage loans, and other commercial real estate-related debt investments. The company has a P/E ratio of 16.71. Currently there are 3 analysts that rate Colony Financial a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Colony Financial has been 773,200 shares per day over the past 30 days. Colony Financial has a market cap of $1.4 billion and is part of the real estate industry. Shares are up 18.5% year to date as of the close of trading on Friday.

TheStreet Ratings rates Colony Financial as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, compelling growth in net income and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • CLNY's very impressive revenue growth greatly exceeded the industry average of 16.4%. Since the same quarter one year prior, revenues leaped by 70.3%. 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.
  • Compared to its closing price of one year ago, CLNY's share price has jumped by 30.60%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CLNY should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 70.6% when compared to the same quarter one year prior, rising from $11.07 million to $18.88 million.
  • The gross profit margin for COLONY FINANCIAL INC is currently very high, coming in at 72.50%. Regardless of CLNY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CLNY's net profit margin of 57.79% significantly outperformed against the industry.
  • COLONY FINANCIAL INC's earnings per share declined by 8.8% 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, COLONY FINANCIAL INC reported lower earnings of $1.34 versus $1.48 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus $1.34).

New From TheStreet: Jim Cramer's Protégé, Dave Peltier, only buys dividend stocks that have the potential for a 3% to 4% yield and 10% growth. Get his best picks for less than $50/year.

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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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