3 Buy-Rated Dividend Stocks: LGCY, CMLP, TCP

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

Legacy Reserves

Dividend Yield: 8.50%

Legacy Reserves (NASDAQ: LGCY) shares currently have a dividend yield of 8.50%.

Legacy Reserves LP, an independent oil and natural gas limited partnership, engages in the acquisition and development of oil and natural gas properties primarily located in the Permian Basin, Mid-Continent, and Rocky Mountain regions of the United States. The company has a P/E ratio of 23.85.

The average volume for Legacy Reserves has been 225,500 shares per day over the past 30 days. Legacy Reserves has a market cap of $1.5 billion and is part of the energy industry. Shares are up 13.2% year to date as of the close of trading on Friday.

TheStreet Ratings rates Legacy Reserves as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. 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 revenue growth greatly exceeded the industry average of 8.8%. Since the same quarter one year prior, revenues rose by 37.8%. 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 LEGACY RESERVES LP is rather high; currently it is at 54.10%. Regardless of LGCY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LGCY's net profit margin of -6.99% significantly underperformed when compared to the industry average.
  • In its most recent trading session, LGCY 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, 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.
  • LEGACY RESERVES 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, LEGACY RESERVES LP reported lower earnings of $1.43 versus $1.71 in the prior year. For the next year, the market is expecting a contraction of 42.0% in earnings ($0.83 versus $1.43).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 190.7% when compared to the same quarter one year ago, falling from $7.39 million to -$6.71 million.

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Crestwood Midstream Partners

Dividend Yield: 8.10%

Crestwood Midstream Partners (NYSE: CMLP) shares currently have a dividend yield of 8.10%.

Crestwood Midstream Partners LP primarily engages in the gathering, processing, treating, compressing, transporting, and selling natural gas in the United States. The company operates in four segments: Barnett, Fayetteville, Granite Wash, and Marcellus. The company has a P/E ratio of 86.69.

The average volume for Crestwood Midstream Partners has been 282,300 shares per day over the past 30 days. Crestwood Midstream Partners has a market cap of $1.1 billion and is part of the energy industry. Shares are up 17.8% year to date as of the close of trading on Friday.

TheStreet Ratings rates Crestwood Midstream Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. 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 greatly exceeded the industry average of 8.8%. Since the same quarter one year prior, revenues rose by 34.8%. 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 53.63% to $34.03 million when compared to the same quarter last year. In addition, CRESTWOOD MIDSTREAM PTNRS LP has also vastly surpassed the industry average cash flow growth rate of -13.28%.
  • The gross profit margin for CRESTWOOD MIDSTREAM PTNRS LP is rather high; currently it is at 52.60%. Regardless of CMLP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CMLP's net profit margin of 12.37% compares favorably to the industry average.
  • CMLP's debt-to-equity ratio of 0.90 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.92 is weak.
  • CRESTWOOD MIDSTREAM PTNRS 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 two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CRESTWOOD MIDSTREAM PTNRS LP reported lower earnings of $0.37 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($0.52 versus $0.37).

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TC Pipelines

Dividend Yield: 7.10%

TC Pipelines (NYSE: TCP) shares currently have a dividend yield of 7.10%.

TC PipeLines, LP transports natural gas to market hubs and consuming markets primarily in the western and midwestern United States, and central Canada. The company has a P/E ratio of 18.90.

The average volume for TC Pipelines has been 144,800 shares per day over the past 30 days. TC Pipelines has a market cap of $2.3 billion and is part of the energy industry. Shares are up 11.2% year to date as of the close of trading on Friday.

TheStreet Ratings rates TC Pipelines as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins 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:
  • The revenue growth came in higher than the industry average of 8.8%. Since the same quarter one year prior, revenues slightly increased by 6.3%. 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 TC PIPELINES LP is currently very high, coming in at 76.50%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 170.58% significantly outperformed against the industry average.
  • 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. 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.
  • Despite currently having a low debt-to-equity ratio of 0.53, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that TCP's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.69 is low and demonstrates weak liquidity.
  • 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, TC PIPELINES 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.

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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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