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

Spectra Energy Partners

Dividend Yield: 4.80%

Spectra Energy Partners (NYSE: SEP) shares currently have a dividend yield of 4.80%.

Spectra Energy Partners, LP operates as an investment arm of Spectra Energy Corp. The company has a P/E ratio of 26.61.

The average volume for Spectra Energy Partners has been 301,700 shares per day over the past 30 days. Spectra Energy Partners has a market cap of $4.4 billion and is part of the energy industry. Shares are up 36.5% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Spectra Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins, good cash flow from operations, solid stock price performance 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 net income growth from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income increased by 6.7% when compared to the same quarter one year prior, going from $52.40 million to $55.90 million.
  • The gross profit margin for SPECTRA ENERGY PARTNERS LP is currently very high, coming in at 70.44%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 91.78% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $72.50 million or 26.08% when compared to the same quarter last year. In addition, SPECTRA ENERGY PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -86.32%.
  • Compared to its closing price of one year ago, SEP's share price has jumped by 37.32%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.2%. Since the same quarter one year prior, revenues slightly dropped by 1.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

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: 4.60%

Southern (NYSE: SO) shares currently have a dividend yield of 4.60%.

The Southern Company, together with its subsidiaries, operates as a public electric utility company. The company has a P/E ratio of 22.22.

The average volume for Southern has been 4,609,000 shares per day over the past 30 days. Southern has a market cap of $38.1 billion and is part of the utilities industry. Shares are up 3.1% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Southern as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • SO's revenue growth trails the industry average of 17.3%. Since the same quarter one year prior, revenues slightly increased by 1.6%. 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.
  • 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).
  • 36.88% is the gross profit margin for SOUTHERN CO which we consider to be strong. Regardless of SO'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 7.37% trails the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electric Utilities industry. The net income has significantly decreased by 51.0% when compared to the same quarter one year ago, falling from $639.00 million to $313.00 million.
  • The share price of SOUTHERN CO has not done very well: it is down 7.40% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Despite the decline in its share price over the last year, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry. We feel, however, that other strengths this company displays compensate for this.

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: 4.80%

Royal Dutch Shell (NYSE: RDS.A) shares currently have a dividend yield of 4.80%.

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 8.14.

The average volume for Royal Dutch Shell has been 2,282,800 shares per day over the past 30 days. Royal Dutch Shell has a market cap of $202.4 billion and is part of the energy industry. Shares are down 7.1% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Royal Dutch Shell as a buy. The company's strengths can be seen in multiple areas, such as its reasonable 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 0.19 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 0.82 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 6.2%. Since the same quarter one year prior, revenues slightly dropped by 3.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • ROYAL DUTCH SHELL PLC 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 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 ($16.40 versus $8.50).
  • The gross profit margin for ROYAL DUTCH SHELL PLC is currently extremely low, coming in at 14.88%. 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 1.54% 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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