5 Buy-Rated Dividend Stocks: DLR, POM, NGLS, ABV, KMP

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

Digital Realty

Dividend Yield: 4.80%

Digital Realty (NYSE: DLR) shares currently have a dividend yield of 4.80%.

Digital Realty Trust, Inc., a real estate investment trust (REIT), through its controlling interest in Digital Realty Trust, L.P., engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. The company has a P/E ratio of 44.87.

The average volume for Digital Realty has been 1,462,500 shares per day over the past 30 days. Digital Realty has a market cap of $8.4 billion and is part of the real estate industry. Shares are down 1.7% year to date as of the close of trading on Monday.

TheStreet Ratings rates Digital Realty as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 26.5%. 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.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income increased by 5.5% when compared to the same quarter one year prior, going from $48.04 million to $50.71 million.
  • DIGITAL REALTY TRUST INC's earnings per share declined by 5.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DIGITAL REALTY TRUST INC increased its bottom line by earning $1.47 versus $1.31 in the prior year. For the next year, the market is expecting a contraction of 1.4% in earnings ($1.45 versus $1.47).
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, DLR has underperformed the S&P 500 Index, declining 10.10% from its price level of one year ago. 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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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 average volume for Pepco Holdings has been 2,146,400 shares per day over the past 30 days. Pepco Holdings has a market cap of $5.4 billion and is part of the utilities industry. Shares are up 11.2% year to date as of the close of trading on Monday.

TheStreet Ratings rates Pepco Holdings 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:
  • 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.
  • 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 1.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • PEPCO HOLDINGS INC 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, PEPCO HOLDINGS INC increased its bottom line by earning $1.22 versus $1.14 in the prior year. For the next year, the market is expecting a contraction of 7.0% in earnings ($1.14 versus $1.22).
  • The gross profit margin for PEPCO HOLDINGS INC is rather low; currently it is at 20.30%. Regardless of POM's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, POM's net profit margin of -35.10% significantly underperformed when compared to the industry average.
  • Net operating cash flow has significantly decreased to -$146.00 million or 734.78% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much 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: 5.80%

Targa Resources Partners (NYSE: NGLS) shares currently have a dividend yield of 5.80%.

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 66.12.

The average volume for Targa Resources Partners has been 486,300 shares per day over the past 30 days. Targa Resources Partners has a market cap of $5.0 billion and is part of the energy industry. Shares are up 27.9% year to date as of the close of trading on Monday.

TheStreet Ratings rates Targa Resources Partners as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and increase in stock price during the past year. 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:
  • Net operating cash flow has increased to $171.70 million or 17.04% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.50%.
  • NGLS, with its decline in revenue, slightly underperformed the industry average of 8.8%. Since the same quarter one year prior, revenues fell by 15.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 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. 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.
  • The gross profit margin for TARGA RESOURCES PARTNERS LP is currently extremely low, coming in at 12.50%. 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 2.78% trails the industry average.
  • 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. Earnings per share have declined over the last year. We anticipate that this should continue in 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. For the next year, the market is expecting a contraction of 10.0% in earnings ($1.08 versus $1.20).

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.

The average volume for Companhia de Bebidas das Americas Ambev has been 2,229,900 shares per day over the past 30 days. Companhia de Bebidas das Americas Ambev has a market cap of $132.9 billion and is part of the food & beverage industry. Shares are up 2.3% year to date as of the close of trading on Monday.

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, increase in net income, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • ABV's revenue growth has slightly outpaced the industry average of 3.1%. 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 ($1.80 versus $1.64).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Beverages industry average. The net income increased by 11.2% when compared to the same quarter one year prior, going from $1,604.89 million to $1,784.44 million.
  • 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.

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.

Kinder Morgan Energy Partners

Dividend Yield: 5.90%

Kinder Morgan Energy Partners (NYSE: KMP) shares currently have a dividend yield of 5.90%.

Kinder Morgan Energy Partners, L.P. operates as a pipeline transportation and energy storage company in North America. The company has a P/E ratio of 40.98.

The average volume for Kinder Morgan Energy Partners has been 1,007,300 shares per day over the past 30 days. Kinder Morgan Energy Partners has a market cap of $22.8 billion and is part of the energy industry. Shares are up 10.4% year to date as of the close of trading on Monday.

TheStreet Ratings rates Kinder Morgan Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, expanding profit margins 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 greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 44.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • KINDER MORGAN ENERGY -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. We feel that this trend should continue. During the past fiscal year, KINDER MORGAN ENERGY -LP turned its bottom line around by earning $1.64 versus -$0.33 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $1.64).
  • 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 280.1% when compared to the same quarter one year prior, rising from $206.00 million to $783.00 million.
  • 46.80% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. Regardless of KMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMP's net profit margin of 29.42% significantly outperformed against the industry.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, KINDER MORGAN ENERGY -LP has underperformed in comparison with the industry average, but has exceeded 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.

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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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