3 Buy-Rated Dividend Stocks: POM, SO, CLMT

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 3 stocks with substantial yields, that ultimately, we have rated "Buy."

Pepco Holdings

Dividend Yield: 5.30%

Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 5.30%.

Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas.

The average volume for Pepco Holdings has been 2,383,100 shares per day over the past 30 days. Pepco Holdings has a market cap of $5.1 billion and is part of the utilities industry. Shares are up 4.7% year to date as of the close of trading on Monday.

TheStreet Ratings rates Pepco Holdings 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 sub par growth in net income.

Highlights from the ratings report include:
  • POM, with its decline in revenue, underperformed when compared the industry average of 18.4%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • In its most recent trading session, POM 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, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • PEPCO HOLDINGS INC 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. 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, PEPCO HOLDINGS INC increased its bottom line by earning $1.22 versus $1.14 in the prior year. For the next year, the market is expecting a contraction of 6.5% in earnings ($1.14 versus $1.22).
  • The gross profit margin for PEPCO HOLDINGS INC is rather low; currently it is at 20.33%. Regardless of POM's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, POM's net profit margin of -35.10% significantly underperformed when compared to the industry average.
  • Net operating cash flow has significantly decreased to -$146.00 million or 734.78% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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

Southern

Dividend Yield: 4.50%

Southern (NYSE: SO) shares currently have a dividend yield of 4.50%.

The Southern Company, together with its subsidiaries, operates as a public electric utility company. The company has a P/E ratio of 19.38.

The average volume for Southern has been 4,402,900 shares per day over the past 30 days. Southern has a market cap of $39.5 billion and is part of the utilities industry. Shares are up 6% year to date as of the close of trading on Monday.

TheStreet Ratings rates Southern as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • SO's revenue growth trails the industry average of 18.4%. Since the same quarter one year prior, revenues slightly increased by 8.1%. 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 $737.00 million or 29.75% when compared to the same quarter last year. In addition, SOUTHERN CO has also modestly surpassed the industry average cash flow growth rate of 25.42%.
  • SOUTHERN CO 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. 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, SOUTHERN CO increased its bottom line by earning $2.67 versus $2.55 in the prior year. This year, the market expects an improvement in earnings ($2.75 versus $2.67).
  • The gross profit margin for SOUTHERN CO is currently lower than what is desirable, coming in at 34.15%. Regardless of SO'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 2.48% trails the industry average.
  • In its most recent trading session, SO 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 toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.

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

Calumet Specialty Products Partners

Dividend Yield: 8.10%

Calumet Specialty Products Partners (NASDAQ: CLMT) shares currently have a dividend yield of 8.10%.

Calumet Specialty Products Partners, L.P. produces and sells specialty hydrocarbon and fuel products in North America. It operates in two segments, Specialty Products and Fuel Products. The company has a P/E ratio of 10.60.

The average volume for Calumet Specialty Products Partners has been 483,600 shares per day over the past 30 days. Calumet Specialty Products Partners has a market cap of $2.3 billion and is part of the energy industry. Shares are up 11.3% year to date as of the close of trading on Monday.

TheStreet Ratings rates Calumet Specialty Products Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, attractive valuation levels 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 came in higher than the industry average of 10.8%. Since the same quarter one year prior, revenues rose by 12.7%. 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.
  • Compared to its closing price of one year ago, CLMT's share price has jumped by 37.15%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, CALUMET SPECIALTY PRODS -LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • CALUMET SPECIALTY PRODS -LP's earnings per share declined by 31.9% 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, CALUMET SPECIALTY PRODS -LP increased its bottom line by earning $3.53 versus $0.89 in the prior year. For the next year, the market is expecting a contraction of 21.1% in earnings ($2.78 versus $3.53).

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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