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."

Calumet Specialty Products Partners

Dividend Yield: 7.30%

Calumet Specialty Products Partners (NASDAQ: CLMT) shares currently have a dividend yield of 7.30%.

Calumet Specialty Products Partners, L.P. produces and sells specialty hydrocarbon and fuel products in North America. It operates in two segments, Specialty Products and Fuel Products. The company has a P/E ratio of 10.23.

The average volume for Calumet Specialty Products Partners has been 665,800 shares per day over the past 30 days. Calumet Specialty Products Partners has a market cap of $2.3 billion and is part of the energy industry. Shares are up 17.8% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Calumet Specialty Products Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, attractive valuation levels, good cash flow from operations 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 1.1%. Since the same quarter one year prior, revenues rose by 19.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 43.13% and other important driving factors, this stock has surged by 37.86% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains 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 Oil, Gas & Consumable Fuels industry. The net income increased by 70.2% when compared to the same quarter one year prior, rising from $26.87 million to $45.74 million.
  • Net operating cash flow has increased to $90.67 million or 40.92% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 20.63%.

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Dow Chemical

Dividend Yield: 4.20%

Dow Chemical (NYSE: DOW) shares currently have a dividend yield of 4.20%.

The Dow Chemical Company manufactures and supplies chemical products used as raw materials in the manufacture of customer products and services worldwide. The company has a P/E ratio of 43.11.

The average volume for Dow Chemical has been 7,819,700 shares per day over the past 30 days. Dow Chemical has a market cap of $36.5 billion and is part of the chemicals industry. Shares are down 6.4% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Dow Chemical as a buy. The company's strongest point has been its a solid financial position based on a variety of debt and liquidity measures that we have looked at. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • DOW CHEMICAL has exprienced 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, DOW CHEMICAL reported lower earnings of $0.71 versus $2.05 in the prior year. This year, the market expects an improvement in earnings ($2.36 versus $0.71).
  • DOW, with its decline in revenue, slightly underperformed the industry average of 5.6%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The debt-to-equity ratio of 1.01 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, DOW's quick ratio is somewhat strong at 1.22, demonstrating the ability to handle short-term liquidity needs.
  • The gross profit margin for DOW CHEMICAL is rather low; currently it is at 18.10%. Regardless of DOW's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, DOW's net profit margin of -4.53% significantly underperformed when compared to the industry average.
  • Net operating cash flow has decreased to $1,551.00 million or 23.25% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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.

Targa Resources Partners

Dividend Yield: 5.90%

Targa Resources Partners (NYSE: NGLS) shares currently have a dividend yield of 5.90%.

Targa Resources Partners LP provides midstream natural gas, natural gas liquid (NGL), terminaling, and crude oil gathering services in the United States. The company operates in two divisions, Gathering and Processing, and Logistics and Marketing. The company has a P/E ratio of 38.60.

The average volume for Targa Resources Partners has been 485,300 shares per day over the past 30 days. Targa Resources Partners has a market cap of $4.7 billion and is part of the energy industry. Shares are up 25.9% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Targa Resources Partners as a buy. Among the primary strengths of the company is its solid stock performance, considering both the consistency and magnitude of the price movement over time. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • TARGA RESOURCES PARTNERS LP has exprienced 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, TARGA RESOURCES PARTNERS LP reported lower earnings of $1.20 versus $1.98 in the prior year. This year, the market expects an improvement in earnings ($1.21 versus $1.20).
  • NGLS, with its decline in revenue, underperformed when compared the industry average of 1.1%. Since the same quarter one year prior, revenues fell by 21.0%. 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. 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.
  • The gross profit margin for TARGA RESOURCES PARTNERS LP is currently extremely low, coming in at 11.40%. Regardless of NGLS's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.18% trails the industry average.
  • Net operating cash flow has decreased to $149.90 million or 28.48% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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.

Chimera Investment Corporation

Dividend Yield: 11.40%

Chimera Investment Corporation (NYSE: CIM) shares currently have a dividend yield of 11.40%.

Chimera Investment Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 24.23.

The average volume for Chimera Investment Corporation has been 10,760,600 shares per day over the past 30 days. Chimera Investment Corporation has a market cap of $3.2 billion and is part of the real estate industry. Shares are up 23% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Chimera Investment Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, expanding profit margins, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 16.5%. Since the same quarter one year prior, revenues rose by 10.3%. 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.
  • The gross profit margin for CHIMERA INVESTMENT CORP is currently very high, coming in at 88.80%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 25.51% trails the industry average.
  • Net operating cash flow has increased to $109.58 million or 36.72% when compared to the same quarter last year. Despite an increase in cash flow, CHIMERA INVESTMENT CORP's average is still marginally south of the industry average growth rate of 38.55%.
  • 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.

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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