3 Buy-Rated Dividend Stocks: DRI, EPB, PNW

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."

Darden Restaurants

Dividend Yield: 4.50%

Darden Restaurants (NYSE: DRI) shares currently have a dividend yield of 4.50%.

Darden Restaurants, Inc. owns and operates full service restaurants in the United States and Canada. It operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's Prime Seafood, and Wildfish Seafood Grille brand names. The company has a P/E ratio of 15.63

The average volume for Darden Restaurants has been 1,527,800 shares per day over the past 30 days Darden Restaurants has a market cap of $6.4 billion and is part of the leisure industry Shares are up 9.9% year to date as of the close of trading on Wednesday

TheStreet Ratings rates Darden Restaurants as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and attractive valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • DRI's revenue growth has slightly outpaced the industry average of 2.7%. Since the same quarter one year prior, revenues slightly increased by 4.5%. 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.
  • DARDEN RESTAURANTS INC's earnings per share declined by 18.4% 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, DARDEN RESTAURANTS INC increased its bottom line by earning $3.59 versus $3.42 in the prior year. For the next year, the market is expecting a contraction of 12.0% in earnings ($3.16 versus $3.59).
  • In its most recent trading session, DRI 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.
  • 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. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, DARDEN RESTAURANTS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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

El Paso Pipeline Partners

Dividend Yield: 5.90%

El Paso Pipeline Partners (NYSE: EPB) shares currently have a dividend yield of 5.90%.

El Paso Pipeline Partners, L.P. engages in the ownership and operation of interstate natural gas transportation and terminaling facilities in the United States. The company has a P/E ratio of 19.15

The average volume for El Paso Pipeline Partners has been 424,500 shares per day over the past 30 days El Paso Pipeline Partners has a market cap of $9.1 billion and is part of the energy industry Shares are up 17.7% year to date as of the close of trading on Wednesday

TheStreet Ratings rates El Paso Pipeline Partners as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, expanding profit margins, good cash flow from operations 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 stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. 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.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry average. The net income increased by 16.8% when compared to the same quarter one year prior, going from $149.00 million to $174.00 million.
  • The gross profit margin for EL PASO PIPELINE PARTNERS LP is currently very high, coming in at 76.20%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 45.07% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $276.00 million or 32.69% when compared to the same quarter last year. In addition, EL PASO PIPELINE PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -25.51%.
  • 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. In comparison to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, EL PASO PIPELINE PARTNERS LP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.

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

Pinnacle West Capital Corporation

Dividend Yield: 4.10%

Pinnacle West Capital Corporation (NYSE: PNW) shares currently have a dividend yield of 4.10%.

Pinnacle West Capital Corporation, through its subsidiary, Arizona Public Service Company, provides retail and wholesale electric services primarily in the State of Arizona. The company has a P/E ratio of 14.09

The average volume for Pinnacle West Capital Corporation has been 836,600 shares per day over the past 30 days Pinnacle West Capital Corporation has a market cap of $5.9 billion and is part of the utilities industry Shares are up 7.2% year to date as of the close of trading on Wednesday

TheStreet Ratings rates Pinnacle West Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • PINNACLE WEST CAPITAL CORP 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, PINNACLE WEST CAPITAL CORP increased its bottom line by earning $3.50 versus $2.99 in the prior year. This year, the market expects an improvement in earnings ($3.59 versus $3.50).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 396.0% when compared to the same quarter one year prior, rising from -$8.26 million to $24.44 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 13.8%. Since the same quarter one year prior, revenues rose by 10.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Net operating cash flow has significantly increased by 83.94% to $212.16 million when compared to the same quarter last year. In addition, PINNACLE WEST CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of 17.17%.
  • The debt-to-equity ratio is somewhat low, currently at 0.85, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.33 is very weak and demonstrates a lack of ability to pay short-term obligations.

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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