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."

Linn Energy

Dividend Yield: 8.00%

Linn Energy (NASDAQ: LINE) shares currently have a dividend yield of 8.00%.

Linn Energy, LLC, an independent oil and natural gas company, engages in the acquisition and development of oil and natural gas properties.

The average volume for Linn Energy has been 1,754,100 shares per day over the past 30 days. Linn Energy has a market cap of $9.0 billion and is part of the energy industry. Shares are up 9.1% year to date as of the close of trading on Monday.

TheStreet Ratings rates Linn Energy as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 4.2%. 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.
  • Net operating cash flow has significantly increased by 842.17% to $334.59 million when compared to the same quarter last year. In addition, LINN ENERGY LLC has also vastly surpassed the industry average cash flow growth rate of -23.86%.
  • 40.40% is the gross profit margin for LINN ENERGY LLC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, LINE's net profit margin of -60.12% significantly underperformed when compared to the industry average.
  • LINN ENERGY LLC 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, LINN ENERGY LLC swung to a loss, reporting -$1.86 versus $2.21 in the prior year. This year, the market expects an improvement in earnings ($1.39 versus -$1.86).
  • The share price of LINN ENERGY LLC has not done very well: it is down 5.71% 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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PVR Partners

Dividend Yield: 8.70%

PVR Partners (NYSE: PVR) shares currently have a dividend yield of 8.70%.

PVR Partners, L.P. engages in the gathering and processing of natural gas; and management of coal and natural resource properties in the United States. The company operates in three segments: Eastern Midstream, Midcontinent Midstream, and Coal and Natural Resource Management.

The average volume for PVR Partners has been 632,600 shares per day over the past 30 days. PVR Partners has a market cap of $2.4 billion and is part of the utilities industry. Shares are down 6% year to date as of the close of trading on Monday.

TheStreet Ratings rates PVR Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth 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:
  • The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 6.9%. 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 106.6% when compared to the same quarter one year prior, rising from -$110.34 million to $7.24 million.
  • Net operating cash flow has significantly increased by 75.82% to $79.42 million when compared to the same quarter last year. In addition, PVR PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -23.86%.
  • PVR PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to 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, PVR PARTNERS LP swung to a loss, reporting -$1.60 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($0.65 versus -$1.60).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PVR PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.

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.

AT&T

Dividend Yield: 4.80%

AT&T (NYSE: T) shares currently have a dividend yield of 4.80%.

AT&T Inc. provides telecommunications services to consumers, businesses, and other providers in the United States and internationally. The company operates in three segments: Wireless, Wireline, and Other. The company has a P/E ratio of 28.29.

The average volume for AT&T has been 25,878,600 shares per day over the past 30 days. AT&T has a market cap of $206.4 billion and is part of the telecommunications industry. Shares are up 10% year to date as of the close of trading on Monday.

TheStreet Ratings rates AT&T as a buy. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, growth in earnings per share, expanding profit margins, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
  • AT&T INC has improved earnings per share by 11.7% 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 year. We feel that this trend should continue. During the past fiscal year, AT&T INC increased its bottom line by earning $1.21 versus $0.66 in the prior year. This year, the market expects an improvement in earnings ($2.51 versus $1.21).
  • The gross profit margin for AT&T INC is rather high; currently it is at 60.00%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 11.79% is above that of the industry average.
  • Net operating cash flow has slightly increased to $8,199.00 million or 5.16% when compared to the same quarter last year. Despite an increase in cash flow, AT&T INC's cash flow growth rate is still lower than the industry average growth rate of 19.91%.
  • The debt-to-equity ratio is somewhat low, currently at 0.84, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that T's debt-to-equity ratio is low, the quick ratio, which is currently 0.54, 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.

Reynolds American

Dividend Yield: 4.90%

Reynolds American (NYSE: RAI) shares currently have a dividend yield of 4.90%.

Reynolds American Inc., through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The company operates through RJR Tobacco, American Snuff, and Santa Fe segments. The company has a P/E ratio of 17.73.

The average volume for Reynolds American has been 2,419,100 shares per day over the past 30 days. Reynolds American has a market cap of $26.1 billion and is part of the tobacco industry. Shares are up 15.1% year to date as of the close of trading on Monday.

TheStreet Ratings rates Reynolds American as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

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 Tobacco industry. The net income increased by 88.1% when compared to the same quarter one year prior, rising from $270.00 million to $508.00 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 Tobacco industry and the overall market, REYNOLDS AMERICAN INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 63.10%. It has increased significantly from the same period last year. Along with this, the net profit margin of 26.97% is above that of the industry average.
  • The debt-to-equity ratio is somewhat low, currently at 0.99, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.72 is somewhat weak and could be cause for future problems.
  • 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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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