4 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 4 stocks with substantial yields, that ultimately, we have rated "Buy."

Public Service Enterprise Group

Dividend Yield: 4.20%

Public Service Enterprise Group (NYSE: PEG) shares currently have a dividend yield of 4.20%.

Public Service Enterprise Group Incorporated, through its subsidiaries, operates as an energy company primarily in the northeastern and mid Atlantic United States. The company has a P/E ratio of 13.68. Currently there is 1 analyst that rates Public Service Enterprise Group a buy, 1 analyst rates it a sell, and 8 rate it a hold.

The average volume for Public Service Enterprise Group has been 3,051,400 shares per day over the past 30 days. Public Service Enterprise Group has a market cap of $17.4 billion and is part of the utilities industry. Shares are up 12.2% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Public Service Enterprise Group as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • The debt-to-equity ratio is somewhat low, currently at 0.76, 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 0.38 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • PEG, with its decline in revenue, underperformed when compared the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 8.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 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 Multi-Utilities industry and the overall market on the basis of return on equity, PUBLIC SERVICE ENTRP GRP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The gross profit margin for PUBLIC SERVICE ENTRP GRP INC is currently lower than what is desirable, coming in at 32.90%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 9.31% is above that of the industry average.

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.

Pepco Holdings

Dividend Yield: 5.00%

Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 5.00%.

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 17.26. 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 2,082,800 shares per day over the past 30 days. Pepco Holdings has a market cap of $5.3 billion and is part of the utilities industry. Shares are up 9.1% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Pepco Holdings as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, 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 5.34%.
  • 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 7.7% in earnings ($1.15 versus $1.24).
  • POM, with its decline in revenue, underperformed when compared the industry average of 13.3%. 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.

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.

Southern

Dividend Yield: 4.20%

Southern (NYSE: SO) shares currently have a dividend yield of 4.20%.

The Southern Company, together with its subsidiaries, operates as a public electric utility company. The company has a P/E ratio of 17.57. Currently there is 1 analyst that rates Southern a buy, 2 analysts rate it a sell, and 11 rate it a hold.

The average volume for Southern has been 4,393,400 shares per day over the past 30 days. Southern has a market cap of $40.8 billion and is part of the utilities industry. Shares are up 9.6% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Southern as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • SOUTHERN CO has improved earnings per share by 43.3% 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, SOUTHERN CO increased its bottom line by earning $2.67 versus $2.55 in the prior year. This year, the market expects an improvement in earnings ($2.75 versus $2.67).
  • 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 44.0% when compared to the same quarter one year prior, rising from $277.00 million to $399.00 million.
  • SO's revenue growth trails the industry average of 13.3%. Since the same quarter one year prior, revenues slightly increased by 0.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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 Electric Utilities industry and the overall market on the basis of return on equity, SOUTHERN CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • 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. 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.

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.

Companhia de Bebidas das Americas Ambev

Dividend Yield: 4.10%

Companhia de Bebidas das Americas Ambev (NYSE: ABV) shares currently have a dividend yield of 4.10%.

Companhia de Bebidas das Americas Ambev engages in the production, distribution, and sale of beer, draft beer, carbonated soft drinks, malt, and other non-alcoholic and non-carbonated products in the Americas. It also sells bottled water, isotonics, and ready-to-drink teas. The company has a P/E ratio of 103.62. Currently there are 2 analysts that rate Companhia de Bebidas das Americas Ambev a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Companhia de Bebidas das Americas Ambev has been 1,853,700 shares per day over the past 30 days. Companhia de Bebidas das Americas Ambev has a market cap of $132.4 billion and is part of the food & beverage industry. Shares are up 0.8% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Companhia de Bebidas das Americas Ambev as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, notable return on equity, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:
  • ABV's revenue growth has slightly outpaced the industry average of 0.4%. Since the same quarter one year prior, revenues slightly increased by 9.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • COMPANHIA DE BEBIDAS DAS AME has improved earnings per share by 9.6% 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, COMPANHIA DE BEBIDAS DAS AME increased its bottom line by earning $1.64 versus $1.49 in the prior year. This year, the market expects an improvement in earnings ($1.82 versus $1.64).
  • 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 Beverages industry and the overall market, COMPANHIA DE BEBIDAS DAS AME's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for COMPANHIA DE BEBIDAS DAS AME is rather high; currently it is at 69.90%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 36.84% significantly outperformed against the industry average.
  • Net operating cash flow has slightly increased to $3,464.84 million or 8.83% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -2.63%.

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.

Other helpful dividend tools from TheStreet:

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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