4 Buy-Rated Dividend Stocks: DLR, KMP, EEP, HIW

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."

Digital Realty

Dividend Yield: 5.00%

Digital Realty (NYSE: DLR) shares currently have a dividend yield of 5.00%.

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 42.87.

The average volume for Digital Realty has been 1,439,700 shares per day over the past 30 days. Digital Realty has a market cap of $8.0 billion and is part of the real estate industry. Shares are down 7.8% year to date as of the close of trading on Thursday.

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 12.0%. 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 3.4% in earnings ($1.42 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 12.00% 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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Kinder Morgan Energy Partners

Dividend Yield: 5.80%

Kinder Morgan Energy Partners (NYSE: KMP) shares currently have a dividend yield of 5.80%.

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 41.36.

The average volume for Kinder Morgan Energy Partners has been 1,013,900 shares per day over the past 30 days. Kinder Morgan Energy Partners has a market cap of $23.0 billion and is part of the energy industry. Shares are up 10.5% year to date as of the close of trading on Thursday.

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, good cash flow from operations and expanding profit margins. 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 8.8%. 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 ($2.63 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.
  • Net operating cash flow has increased to $746.00 million or 13.37% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.28%.
  • 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.

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Enbridge Energy Partners

Dividend Yield: 7.00%

Enbridge Energy Partners (NYSE: EEP) shares currently have a dividend yield of 7.00%.

Enbridge Energy Partners, L.P. owns and operates crude oil and liquid petroleum transportation and storage assets; and natural gas gathering, treating, processing, transportation, and marketing assets in the United States. The company has a P/E ratio of 47.00.

The average volume for Enbridge Energy Partners has been 987,900 shares per day over the past 30 days. Enbridge Energy Partners has a market cap of $7.9 billion and is part of the energy industry. Shares are up 10.6% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Enbridge Energy Partners as a buy. The company's strongest point has been its 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:
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.8%. Since the same quarter one year prior, revenues slightly dropped by 7.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • In its most recent trading session, EEP 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. 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 ENBRIDGE ENERGY PRTNRS -LP is currently lower than what is desirable, coming in at 27.60%. Regardless of EEP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, EEP's net profit margin of -4.92% significantly underperformed when compared to the industry average.
  • Net operating cash flow has decreased to $205.90 million or 20.03% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ENBRIDGE ENERGY PRTNRS -LP has marginally lower results.
  • ENBRIDGE ENERGY PRTNRS -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, ENBRIDGE ENERGY PRTNRS -LP reported lower earnings of $1.25 versus $1.89 in the prior year. For the next year, the market is expecting a contraction of 20.0% in earnings ($1.00 versus $1.25).

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.

Highwoods Properties

Dividend Yield: 4.40%

Highwoods Properties (NYSE: HIW) shares currently have a dividend yield of 4.40%.

Highwoods Properties, Inc. is a real estate investment trust. The trust engages in leasing, management, development, construction, and other customer-related services for its properties and for third parties. It invests in the real estate markets of United States. The company has a P/E ratio of 64.05.

The average volume for Highwoods Properties has been 933,700 shares per day over the past 30 days. Highwoods Properties has a market cap of $3.2 billion and is part of the real estate industry. Shares are up 14.9% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Highwoods Properties as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, increase in stock price during the past year and notable return on equity. 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 12.0%. Since the same quarter one year prior, revenues slightly increased by 9.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Net operating cash flow has significantly increased by 91.01% to $42.12 million when compared to the same quarter last year. In addition, HIGHWOODS PROPERTIES INC has also vastly surpassed the industry average cash flow growth rate of -20.78%.
  • HIGHWOODS PROPERTIES INC reported flat earnings per share in the most recent quarter. 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, HIGHWOODS PROPERTIES INC increased its bottom line by earning $0.58 versus $0.41 in the prior year. This year, the market expects an improvement in earnings ($0.69 versus $0.58).
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, HIGHWOODS PROPERTIES INC's return on equity is below that of both the industry average and 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.

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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