Best Of The Buy-Rated Dividend Stocks: Top 3 Companies: KCAP, MMLP, EXLP

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."

KCAP Financial

Dividend Yield: 12.70%

KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 12.70%.

KCAP Financial, Inc. is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies. The company has a P/E ratio of 7.86.

The average volume for KCAP Financial has been 214,100 shares per day over the past 30 days. KCAP Financial has a market cap of $262.0 million and is part of the financial services industry. Shares are down 1.6% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates KCAP Financial 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 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 greatly exceeded the industry average of 8.8%. Since the same quarter one year prior, revenues rose by 22.1%. 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.
  • The gross profit margin for KCAP FINANCIAL INC is currently very high, coming in at 82.83%. Regardless of KCAP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KCAP's net profit margin of -0.73% significantly underperformed when compared to the industry average.
  • KCAP FINANCIAL INC has experienced 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, KCAP FINANCIAL INC increased its bottom line by earning $0.91 versus $0.32 in the prior year. This year, the market expects earnings to be in line with last year ($0.91 versus $0.91).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Capital Markets industry and the overall market, KCAP FINANCIAL INC's return on equity is below that of both the industry average and 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.

Martin Midstream Partners L.P

Dividend Yield: 7.30%

Martin Midstream Partners L.P (NASDAQ: MMLP) shares currently have a dividend yield of 7.30%.

Martin Midstream Partners L.P. collects, transports, stores, and markets petroleum products and by-products in the United States Gulf Coast region. The company has a P/E ratio of 32.31.

The average volume for Martin Midstream Partners L.P has been 64,400 shares per day over the past 30 days. Martin Midstream Partners L.P has a market cap of $1.1 billion and is part of the energy industry. Shares are up 0.9% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates Martin Midstream Partners L.P as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, 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 sub par growth in net income.

Highlights from the ratings report include:
  • MMLP's revenue growth has slightly outpaced the industry average of 5.6%. 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.
  • Net operating cash flow has significantly increased by 70.81% to -$10.25 million when compared to the same quarter last year. In addition, MARTIN MIDSTREAM PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of 2.81%.
  • Compared to its closing price of one year ago, MMLP's share price has jumped by 31.72%, 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.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MARTIN MIDSTREAM PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • MARTIN MIDSTREAM PARTNERS LP has experienced 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, MARTIN MIDSTREAM PARTNERS LP increased its bottom line by earning $1.33 versus $0.56 in the prior year. For the next year, the market is expecting a contraction of 7.1% in earnings ($1.24 versus $1.33).

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

Exterran Partners L.P

Dividend Yield: 7.30%

Exterran Partners L.P (NASDAQ: EXLP) shares currently have a dividend yield of 7.30%.

Exterran Partners, L.P., together with its subsidiaries, provides natural gas contract operations services to customers in the United States. The company has a P/E ratio of 22.02.

The average volume for Exterran Partners L.P has been 110,000 shares per day over the past 30 days. Exterran Partners L.P has a market cap of $1.4 billion and is part of the energy industry. Shares are down 4.9% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates Exterran Partners L.P as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, expanding profit margins, solid stock price performance 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:
  • EXLP's revenue growth has slightly outpaced the industry average of 9.1%. Since the same quarter one year prior, revenues rose by 16.6%. 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.
  • Net operating cash flow has increased to $49.07 million or 47.38% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 30.62%.
  • 40.91% is the gross profit margin for EXTERRAN PARTNERS LP which we consider to be strong. 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 8.66% trails the industry average.
  • EXTERRAN PARTNERS LP's earnings per share declined by 23.8% 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, EXTERRAN PARTNERS LP increased its bottom line by earning $0.14 versus $0.07 in the prior year. This year, the market expects an improvement in earnings ($1.28 versus $0.14).
  • EXLP's share price has surged by 29.68% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. 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.

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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