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."

Mid-America Apartment Communities

Dividend Yield: 4.10%

Mid-America Apartment Communities (NYSE: MAA) shares currently have a dividend yield of 4.10%.

Mid-America Apartment Communities, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in acquisition, redevelopment, new development, property management, and disposition of multifamily apartment communities. The company has a P/E ratio of 43.52.

The average volume for Mid-America Apartment Communities has been 320,600 shares per day over the past 30 days. Mid-America Apartment Communities has a market cap of $2.9 billion and is part of the real estate industry. Shares are up 6.1% year to date as of the close of trading on Friday.

TheStreet Ratings rates Mid-America Apartment Communities as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, robust revenue growth, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • MID-AMERICA APT CMNTYS 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. We feel that this trend should continue. During the past fiscal year, MID-AMERICA APT CMNTYS INC increased its bottom line by earning $1.56 versus $0.88 in the prior year. This year, the market expects an improvement in earnings ($1.69 versus $1.56).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry average. The net income increased by 18.9% when compared to the same quarter one year prior, going from $18.76 million to $22.31 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 16.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Net operating cash flow has increased to $53.23 million or 22.87% when compared to the same quarter last year. Despite an increase in cash flow, MID-AMERICA APT CMNTYS INC's cash flow growth rate is still lower than the industry average growth rate of 38.58%.
  • In its most recent trading session, MAA has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.

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 17.30.

The average volume for Pepco Holdings has been 1,981,000 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 11.8% 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 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 4.97%.
  • 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 8.5% in earnings ($1.14 versus $1.24).
  • POM, with its decline in revenue, underperformed when compared the industry average of 13.2%. 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.

Ecopetrol S.A

Dividend Yield: 6.00%

Ecopetrol S.A (NYSE: EC) shares currently have a dividend yield of 6.00%.

Ecopetrol S.A., an integrated oil company, engages in the exploration, development, and production of crude oil and natural gas. As of December 31, 2011, its proved reserves of crude oil and natural gas totaled 1,856.7 million barrels of oil equivalent. The company has a P/E ratio of 7.78.

The average volume for Ecopetrol S.A has been 570,600 shares per day over the past 30 days. Ecopetrol S.A has a market cap of $95.9 billion and is part of the energy industry. Shares are down 20.8% year to date as of the close of trading on Friday.

TheStreet Ratings rates Ecopetrol S.A as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.3%. Since the same quarter one year prior, revenues rose by 15.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 53.01% to $4,898.80 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 26.66%.
  • 42.60% is the gross profit margin for ECOPETROL SA which we consider to be strong. Regardless of EC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EC's net profit margin of 20.48% significantly outperformed against the industry.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Oil, Gas & Consumable Fuels industry average. The net income increased by 0.8% when compared to the same quarter one year prior, going from $2,202.93 million to $2,220.02 million.
  • EC's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that EC's debt-to-equity ratio is low, the quick ratio, which is currently 0.63, displays a potential problem in covering short-term cash needs.

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.

Energy Transfer Equity

Dividend Yield: 4.40%

Energy Transfer Equity (NYSE: ETE) shares currently have a dividend yield of 4.40%.

Energy Transfer Equity, L.P., through its subsidiaries, provides diversified energy-related services in the United States. The company sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users, and other marketing companies. The company has a P/E ratio of 49.85.

The average volume for Energy Transfer Equity has been 708,000 shares per day over the past 30 days. Energy Transfer Equity has a market cap of $16.3 billion and is part of the energy industry. Shares are up 30.4% year to date as of the close of trading on Friday.

TheStreet Ratings rates Energy Transfer Equity as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth 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:
  • ETE's very impressive revenue growth greatly exceeded the industry average of 1.1%. Since the same quarter one year prior, revenues leaped by 422.5%. 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.
  • Compared to its closing price of one year ago, ETE's share price has jumped by 53.85%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • ENERGY TRANSFER EQUITY 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. 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, ENERGY TRANSFER EQUITY LP increased its bottom line by earning $1.61 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($2.38 versus $1.61).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, ENERGY TRANSFER EQUITY LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The gross profit margin for ENERGY TRANSFER EQUITY LP is currently extremely low, coming in at 8.70%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 0.43% trails 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.

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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