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

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."

Solar Capital

Dividend Yield: 10.40%

Solar Capital (NASDAQ: SLRC) shares currently have a dividend yield of 10.40%.

Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 8.68.

The average volume for Solar Capital has been 306,400 shares per day over the past 30 days. Solar Capital has a market cap of $1.0 billion and is part of the financial services industry. Shares are down 3.4% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Solar Capital as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, 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:
  • The revenue growth greatly exceeded the industry average of 6.3%. Since the same quarter one year prior, revenues rose by 26.9%. 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 SOLAR CAPITAL LTD is rather high; currently it is at 65.80%. Regardless of SLRC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SLRC's net profit margin of 77.67% 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. When compared to other companies in the Capital Markets industry and the overall market, SOLAR CAPITAL LTD's return on equity is below that of both the industry average and the S&P 500.
  • In its most recent trading session, SLRC 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. 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.
  • SOLAR CAPITAL LTD's earnings per share declined by 35.7% 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, SOLAR CAPITAL LTD increased its bottom line by earning $3.12 versus $1.69 in the prior year. For the next year, the market is expecting a contraction of 24.4% in earnings ($2.36 versus $3.12).

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

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 23.81.

The average volume for Legacy Reserves has been 210,100 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 13.1% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Legacy Reserves 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 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 greatly exceeded the industry average of 10.6%. 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.
  • Net operating cash flow has increased to $55.49 million or 23.88% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -25.53%.
  • 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. 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.
  • 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 45.5% in earnings ($0.78 versus $1.43).

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

Crestwood Midstream Partners

Dividend Yield: 8.30%

Crestwood Midstream Partners (NYSE: CMLP) shares currently have a dividend yield of 8.30%.

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 84.86.

The average volume for Crestwood Midstream Partners has been 212,700 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 15.9% year to date as of the close of trading on Wednesday.

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 10.6%. 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 -25.53%.
  • 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).

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

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.

null

More from Markets

To Win at Trade the U.S. Must Act and Behave Like China

To Win at Trade the U.S. Must Act and Behave Like China

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

Video: Jim Cramer on Tariffs, the Market Rally, Caterpillar and Micron

Video: Jim Cramer on Tariffs, the Market Rally, Caterpillar and Micron

Apple Shares Gain as U.S. and China Call Off Trade War, For Now

Apple Shares Gain as U.S. and China Call Off Trade War, For Now

GE Confirms $11.1 Billion Transportation Merger With Wabtec

GE Confirms $11.1 Billion Transportation Merger With Wabtec