Buy-Rated Dividend Stocks In The Top 5: LO, ACMP, RWT, GEO, ARCC

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

Lorillard

Dividend Yield: 4.40%

Lorillard (NYSE: LO) shares currently have a dividend yield of 4.40%.

Lorillard, Inc. manufactures and sells cigarettes in the United States. The company operates through two segments, Cigarettes and Electronic Cigarettes. The Cigarettes segment manufactures and sells cigarettes. The company has a P/E ratio of 15.65.

The average volume for Lorillard has been 2,938,100 shares per day over the past 30 days. Lorillard has a market cap of $18.3 billion and is part of the tobacco industry. Shares are up 28.3% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Lorillard as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance 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 revenue growth came in higher than the industry average of 1.4%. Since the same quarter one year prior, revenues rose by 12.5%. 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.
  • LORILLARD INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, LORILLARD INC increased its bottom line by earning $2.81 versus $2.67 in the prior year. This year, the market expects an improvement in earnings ($3.17 versus $2.81).
  • LO's share price has surged by 26.10% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The gross profit margin for LORILLARD INC is rather high; currently it is at 51.83%. Regardless of LO'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 19.69% trails the industry average.
  • Net operating cash flow has declined marginally to $553.00 million or 4.32% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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

Access Midstream Partners

Dividend Yield: 4.20%

Access Midstream Partners (NYSE: ACMP) shares currently have a dividend yield of 4.20%.

Access Midstream Partners, L.P. owns, operates, develops, and acquires natural gas, natural gas liquids and oil gathering systems, and other midstream energy assets in the United States. It focuses on natural gas and natural gas liquids gathering operations. The company has a P/E ratio of 79.25.

The average volume for Access Midstream Partners has been 414,500 shares per day over the past 30 days. Access Midstream Partners has a market cap of $9.2 billion and is part of the energy industry. Shares are up 53.6% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Access Midstream Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, good cash flow from operations, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • ACMP's very impressive revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues leaped by 67.2%. 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.
  • 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 55.7% when compared to the same quarter one year prior, rising from $50.23 million to $78.22 million.
  • Net operating cash flow has increased to $140.43 million or 32.13% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 1.10%.
  • The gross profit margin for ACCESS MIDSTREAM PARTNERS LP is rather high; currently it is at 67.99%. Regardless of ACMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ACMP's net profit margin of 29.97% significantly outperformed against the industry.
  • Compared to its closing price of one year ago, ACMP's share price has jumped by 58.69%, 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.

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

Redwood

Dividend Yield: 6.00%

Redwood (NYSE: RWT) shares currently have a dividend yield of 6.00%.

Redwood Trust, Inc. engages in investing, financing, and managing real estate-related assets. The company has a P/E ratio of 8.70.

The average volume for Redwood has been 940,200 shares per day over the past 30 days. Redwood has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 12.2% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Redwood as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, reasonable valuation levels, good cash flow from operations, expanding profit margins 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:
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, REDWOOD TRUST INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 302.35% to $248.09 million when compared to the same quarter last year. In addition, REDWOOD TRUST INC has also vastly surpassed the industry average cash flow growth rate of 8.47%.
  • The gross profit margin for REDWOOD TRUST INC is rather high; currently it is at 58.93%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, RWT's net profit margin of 38.18% significantly outperformed against the industry.
  • 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.

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

Geo Group

Dividend Yield: 6.80%

Geo Group (NYSE: GEO) shares currently have a dividend yield of 6.80%.

The GEO Group, Inc. provides government-outsourced services specializing in the management of correctional, detention, and re-entry facilities, and the provision of community based services and youth services in the United States, Australia, South Africa, the United Kingdom, and Canada. The company has a P/E ratio of 11.53.

The average volume for Geo Group has been 668,000 shares per day over the past 30 days. Geo Group has a market cap of $2.3 billion and is part of the diversified services industry. Shares are up 14.9% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Geo Group as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, notable return on equity, reasonable valuation levels and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins.

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 Real Estate Investment Trusts (REITs) industry. The net income increased by 91.5% when compared to the same quarter one year prior, rising from $15.62 million to $29.90 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.6%. Since the same quarter one year prior, revenues slightly increased by 2.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, GEO GROUP INC's return on equity exceeds that of both the industry average and the S&P 500.
  • 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.

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

Ares Capital Corporation

Dividend Yield: 8.70%

Ares Capital Corporation (NASDAQ: ARCC) shares currently have a dividend yield of 8.70%.

Ares Capital Corporation specializes in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. The company has a P/E ratio of 8.39.

The average volume for Ares Capital Corporation has been 1,943,300 shares per day over the past 30 days. Ares Capital Corporation has a market cap of $4.9 billion and is part of the financial services industry. Shares are down 0.2% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Ares Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels, expanding profit margins, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 8.8%. 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.
  • The gross profit margin for ARES CAPITAL CORP is currently very high, coming in at 70.76%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 57.04% significantly outperformed against the industry average.
  • 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 Capital Markets industry and the overall market on the basis of return on equity, ARES CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • In its most recent trading session, ARCC 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 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.

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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