3 Buy-Rated Dividend Stocks: VZ, MCY, 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 3 stocks with substantial yields, that ultimately, we have rated "Buy."

Verizon Communications

Dividend Yield: 4.20%

Verizon Communications (NYSE: VZ) shares currently have a dividend yield of 4.20%.

Verizon Communications Inc., through its subsidiaries, provides communications, information and entertainment products and services to consumers, businesses, and governmental agencies worldwide. The company has a P/E ratio of 121.20.

The average volume for Verizon Communications has been 12,790,100 shares per day over the past 30 days. Verizon Communications has a market cap of $143.9 billion and is part of the telecommunications industry. Shares are up 12.5% year to date as of the close of trading on Monday.

TheStreet Ratings rates Verizon Communications as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, expanding profit margins and growth in earnings per share. 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:
  • VZ's revenue growth has slightly outpaced the industry average of 0.3%. Since the same quarter one year prior, revenues slightly increased by 4.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Diversified Telecommunication Services industry average. The net income increased by 15.8% when compared to the same quarter one year prior, going from $1,686.00 million to $1,952.00 million.
  • Net operating cash flow has increased to $7,531.00 million or 26.42% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 12.43%.
  • The gross profit margin for VERIZON COMMUNICATIONS INC is rather high; currently it is at 62.80%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.63% trails the industry average.
  • VERIZON COMMUNICATIONS INC has improved earnings per share by 15.3% 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, VERIZON COMMUNICATIONS INC reported lower earnings of $0.31 versus $0.86 in the prior year. This year, the market expects an improvement in earnings ($2.80 versus $0.31).

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Mercury General Corporation

Dividend Yield: 5.50%

Mercury General Corporation (NYSE: MCY) shares currently have a dividend yield of 5.50%.

Mercury General Corporation, together with its subsidiaries, engages in writing personal automobile insurance. The company also writes homeowners, commercial automobile and property, mechanical breakdown, fire, and umbrella insurance. The company has a P/E ratio of 22.39.

The average volume for Mercury General Corporation has been 304,600 shares per day over the past 30 days. Mercury General Corporation has a market cap of $2.5 billion and is part of the insurance industry. Shares are up 12.8% year to date as of the close of trading on Monday.

TheStreet Ratings rates Mercury General Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, increase in stock price during the past year, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • Since the same quarter one year prior, revenues slightly increased by 2.4%. 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 67.79% to $58.20 million when compared to the same quarter last year.
  • Compared to where it was trading one year ago, MCY is up 5.45% to its most recent closing price of 45.66. Looking ahead, although the push and pull of a bull or bear market could certainly alter the outcome, our view is that this stock's positive fundamentals give it good potential for further appreciation.
  • MCY's debt-to-equity ratio is very low at 0.07 and is currently below that of the industry average, implying that there has been very successful management of debt levels.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Kinder Morgan Energy Partners

Dividend Yield: 6.20%

Kinder Morgan Energy Partners (NYSE: KMP) shares currently have a dividend yield of 6.20%.

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 38.79.

The average volume for Kinder Morgan Energy Partners has been 1,084,900 shares per day over the past 30 days. Kinder Morgan Energy Partners has a market cap of $21.6 billion and is part of the energy industry. Shares are up 5.1% 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, 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 10.6%. 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 ($2.64 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 -25.50%.
  • 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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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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