What To Buy: Top 4 Buy-Rated Dividend Stocks: ETR, RAI, SNH, ETE

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."

Entergy

Dividend Yield: 5.20%

Entergy (NYSE: ETR) shares currently have a dividend yield of 5.20%.

Entergy Corporation, together with its subsidiaries, engages in the electric power production and retail electric distribution operations in the United States. The company generates electricity through various sources, such as gas/oil, nuclear, coal, and hydro power. The company has a P/E ratio of 11.89.

The average volume for Entergy has been 1,532,300 shares per day over the past 30 days. Entergy has a market cap of $11.4 billion and is part of the utilities industry. Shares are up 0.4% year to date as of the close of trading on Friday.

TheStreet Ratings rates Entergy as a buy. Among the primary strengths of the company is its revenue growth. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 16.7%. Since the same quarter one year prior, revenues slightly increased by 8.7%. 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.
  • ENTERGY CORP 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, ENTERGY CORP reported lower earnings of $4.75 versus $7.54 in the prior year. This year, the market expects an improvement in earnings ($4.95 versus $4.75).
  • The gross profit margin for ENTERGY CORP is currently lower than what is desirable, coming in at 26.13%. Regardless of ETR'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 6.13% trails the industry average.
  • The share price of ENTERGY CORP has not done very well: it is down 8.31% 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. 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 Electric Utilities industry and the overall market on the basis of return on equity, ENTERGY CORP has outperformed in comparison with the industry average, but has underperformed when compared to 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.

Reynolds American

Dividend Yield: 5.10%

Reynolds American (NYSE: RAI) shares currently have a dividend yield of 5.10%.

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 17.95.

The average volume for Reynolds American has been 1,505,100 shares per day over the past 30 days. Reynolds American has a market cap of $27.0 billion and is part of the tobacco industry. Shares are up 19.6% year to date as of the close of trading on Friday.

TheStreet Ratings rates Reynolds American as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, expanding profit margins, increase in stock price during the past year and growth in earnings per share. 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:
  • RAI's revenue growth has slightly outpaced the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 0.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 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 55.30%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 21.15% trails the industry average.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • REYNOLDS AMERICAN INC has improved earnings per share by 7.7% 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 ($3.24 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.

Senior Housing Properties

Dividend Yield: 6.70%

Senior Housing Properties (NYSE: SNH) shares currently have a dividend yield of 6.70%.

Senior Housing Properties Trust, a real estate investment trust (REIT), primarily invests in senior housing properties in the United States. The trust invests in hospitals, nursing homes, senior apartments, independent living properties, and assisted living properties. The company has a P/E ratio of 30.06.

The average volume for Senior Housing Properties has been 1,458,600 shares per day over the past 30 days. Senior Housing Properties has a market cap of $4.4 billion and is part of the real estate industry. Shares are down 2.1% year to date as of the close of trading on Friday.

TheStreet Ratings rates Senior Housing Properties as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, good cash flow from operations and increase in stock price during the past year. 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 10.7%. Since the same quarter one year prior, revenues rose by 29.5%. 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.
  • Net operating cash flow has slightly increased to $77.24 million or 4.15% when compared to the same quarter last year. Despite an increase in cash flow, SENIOR HOUSING PPTYS TRUST's average is still marginally south of the industry average growth rate of 5.48%.
  • 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.
  • SENIOR HOUSING PPTYS TRUST's earnings per share declined by 15.0% 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 two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, SENIOR HOUSING PPTYS TRUST reported lower earnings of $0.79 versus $1.02 in the prior year. This year, the market expects an improvement in earnings ($0.82 versus $0.79).

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

Energy Transfer Equity

Dividend Yield: 4.20%

Energy Transfer Equity (NYSE: ETE) shares currently have a dividend yield of 4.20%.

Energy Transfer Equity, L.P., through its subsidiaries, provides diversified energy-related services in the United States. The company sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users, and other marketing companies. The company has a P/E ratio of 59.70.

The average volume for Energy Transfer Equity has been 1,038,900 shares per day over the past 30 days. Energy Transfer Equity has a market cap of $17.6 billion and is part of the energy industry. Shares are up 37.8% year to date as of the close of trading on Friday.

TheStreet Ratings rates Energy Transfer Equity as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and solid stock price performance. 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:
  • ETE's very impressive revenue growth greatly exceeded the industry average of 6.6%. Since the same quarter one year prior, revenues leaped by 542.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ENERGY TRANSFER EQUITY LP 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, ENERGY TRANSFER EQUITY LP increased its bottom line by earning $1.63 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($1.77 versus $1.63).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 135.2% when compared to the same quarter one year prior, rising from $54.00 million to $127.00 million.
  • Net operating cash flow has significantly increased by 130.95% to $797.00 million when compared to the same quarter last year. In addition, ENERGY TRANSFER EQUITY LP has also vastly surpassed the industry average cash flow growth rate of -15.78%.
  • Powered by its strong earnings growth of 144.44% and other important driving factors, this stock has surged by 41.53% over the past year, outperforming the rise in the S&P 500 Index during the same period. 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.

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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