4 Buy-Rated Dividend Stocks: GSK, RAI, NGLS, RDS.A

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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."

GlaxoSmithKline

Dividend Yield: 4.20%

GlaxoSmithKline (NYSE: GSK) shares currently have a dividend yield of 4.20%.

GlaxoSmithKline plc, together with its subsidiaries, discovers, develops, manufactures, and markets pharmaceutical products, over-the-counter medicines, and health-related consumer products worldwide. The company has a P/E ratio of 15.85.

The average volume for GlaxoSmithKline has been 2,417,800 shares per day over the past 30 days. GlaxoSmithKline has a market cap of $129.4 billion and is part of the drugs industry. Shares are up 19.3% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates GlaxoSmithKline as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations, increase in stock price during the past year and expanding profit margins. 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 company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, GLAXOSMITHKLINE PLC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to $1,894.57 million or 17.11% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -12.05%.
  • 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.
  • The gross profit margin for GLAXOSMITHKLINE PLC is currently very high, coming in at 70.09%. Regardless of GSK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 14.69% trails the industry average.
  • GLAXOSMITHKLINE PLC's earnings per share declined by 26.5% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, GLAXOSMITHKLINE PLC reported lower earnings of $2.96 versus $3.21 in the prior year. This year, the market expects an improvement in earnings ($3.60 versus $2.96).

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

Reynolds American

Dividend Yield: 4.90%

Reynolds American (NYSE: RAI) shares currently have a dividend yield of 4.90%.

Reynolds American Inc., through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The company operates through RJR Tobacco, American Snuff, and Santa Fe segments. The company has a P/E ratio of 19.14.

The average volume for Reynolds American has been 1,895,600 shares per day over the past 30 days. Reynolds American has a market cap of $28.2 billion and is part of the tobacco industry. Shares are up 25.4% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Reynolds American as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Tobacco industry. The net income increased by 88.1% when compared to the same quarter one year prior, rising from $270.00 million to $508.00 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Tobacco industry and the overall market, REYNOLDS AMERICAN INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 64.58%. It has increased significantly from the same period last year. Along with this, the net profit margin of 26.97% is above that of the industry average.
  • The debt-to-equity ratio is somewhat low, currently at 0.99, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.72 is somewhat weak and could be cause for future problems.
  • REYNOLDS AMERICAN INC reported significant earnings per share improvement 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, REYNOLDS AMERICAN INC reported lower earnings of $2.24 versus $2.41 in the prior year. This year, the market expects an improvement in earnings ($3.23 versus $2.24).

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

Targa Resources Partners

Dividend Yield: 5.20%

Targa Resources Partners (NYSE: NGLS) shares currently have a dividend yield of 5.20%.

Targa Resources Partners LP provides midstream natural gas, natural gas liquid (NGL), terminaling, and crude oil gathering services in the United States. The company operates in two divisions, Gathering and Processing, and Logistics and Marketing. The company has a P/E ratio of 73.63.

The average volume for Targa Resources Partners has been 433,600 shares per day over the past 30 days. Targa Resources Partners has a market cap of $5.5 billion and is part of the energy industry. Shares are up 43.8% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Targa Resources Partners as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and solid stock price performance. 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:
  • Net operating cash flow has increased to $171.70 million or 17.04% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -25.59%.
  • Compared to its closing price of one year ago, NGLS's share price has jumped by 41.08%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • NGLS, with its decline in revenue, slightly underperformed the industry average of 10.7%. Since the same quarter one year prior, revenues fell by 15.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for TARGA RESOURCES PARTNERS LP is currently extremely low, coming in at 12.54%. Regardless of NGLS's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.78% trails the industry average.
  • The debt-to-equity ratio of 1.40 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, NGLS maintains a poor quick ratio of 0.82, which illustrates the inability to avoid short-term cash problems.

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

Royal Dutch Shell

Dividend Yield: 4.60%

Royal Dutch Shell (NYSE: RDS.A) shares currently have a dividend yield of 4.60%.

Royal Dutch Shell plc operates as an independent oil and gas company worldwide. The company explores for and extracts crude oil, natural gas, and natural gas liquids. The company has a P/E ratio of 8.40.

The average volume for Royal Dutch Shell has been 2,224,000 shares per day over the past 30 days. Royal Dutch Shell has a market cap of $210.6 billion and is part of the energy industry. Shares are down 2.6% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Royal Dutch Shell as a buy. The company's strengths can be seen in multiple areas, such as its attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • RDS.A's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.7%. Since the same quarter one year prior, revenues slightly dropped by 5.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • ROYAL DUTCH SHELL PLC's earnings per share declined by 7.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, ROYAL DUTCH SHELL PLC reported lower earnings of $8.50 versus $9.94 in the prior year. This year, the market expects an improvement in earnings ($16.46 versus $8.50).
  • The gross profit margin for ROYAL DUTCH SHELL PLC is rather low; currently it is at 17.51%. Regardless of RDS.A's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.24% trails the industry average.

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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