3 Buy-Rated Dividend Stocks Taking The Lead: AEP, RDS.B, PDLI

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."

American Electric Power

Dividend Yield: 4.20%

American Electric Power (NYSE: AEP) shares currently have a dividend yield of 4.20%.

American Electric Power Company, Inc., a public utility holding company, engages in the generation, transmission, and distribution of electric power to retail customers. The company generates electricity using coal and lignite, natural gas, nuclear energy, and hydroelectric energy. The company has a P/E ratio of 15.63.

The average volume for American Electric Power has been 3,060,000 shares per day over the past 30 days. American Electric Power has a market cap of $23.2 billion and is part of the utilities industry. Shares are up 1.6% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates American Electric Power as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, increase in stock price during the past year and attractive valuation levels. 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 2.3%. Since the same quarter one year prior, revenues slightly increased by 0.5%. 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 increased to $1,524.00 million or 27.10% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 3.73%.
  • 35.11% is the gross profit margin for AMERICAN ELECTRIC POWER CO 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 10.36% trails the industry average.
  • 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.
  • AMERICAN ELECTRIC POWER CO's earnings per share declined by 11.0% 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, AMERICAN ELECTRIC POWER CO reported lower earnings of $2.60 versus $3.24 in the prior year. This year, the market expects an improvement in earnings ($3.20 versus $2.60).

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: 4.90%

Royal Dutch Shell (NYSE: RDS.B) shares currently have a dividend yield of 4.90%.

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 9.39.

The average volume for Royal Dutch Shell has been 1,101,700 shares per day over the past 30 days. Royal Dutch Shell has a market cap of $235.0 billion and is part of the energy industry. Shares are down 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 revenue growth, attractive valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures 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:
  • RDS.B's revenue growth has slightly outpaced the industry average of 5.7%. Since the same quarter one year prior, revenues slightly increased by 3.9%. 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 $10,409.00 million or 9.76% when compared to the same quarter last year. In addition, ROYAL DUTCH SHELL PLC has also modestly surpassed the industry average cash flow growth rate of 2.58%.
  • RDS.B's debt-to-equity ratio is very low at 0.21 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.
  • 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.

PDL BioPharma

Dividend Yield: 6.70%

PDL BioPharma (NASDAQ: PDLI) shares currently have a dividend yield of 6.70%.

PDL BioPharma, Inc. engages in intellectual property asset management and patent portfolio and related assets investment activities. The company has a P/E ratio of 5.37.

The average volume for PDL BioPharma has been 2,588,000 shares per day over the past 30 days. PDL BioPharma has a market cap of $1.3 billion and is part of the drugs industry. Shares are up 6.9% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates PDL BioPharma as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, revenue growth, good cash flow from operations, solid stock price performance 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:
  • Compared to other companies in the Biotechnology industry and the overall market, PDL BIOPHARMA INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • PDLI's revenue growth has slightly outpaced the industry average of 10.5%. Since the same quarter one year prior, revenues rose by 14.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 32.79% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, PDLI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • PDL BIOPHARMA INC has improved earnings per share by 12.5% 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, PDL BIOPHARMA INC increased its bottom line by earning $1.47 versus $1.15 in the prior year. This year, the market expects an improvement in earnings ($1.77 versus $1.47).
  • Net operating cash flow has increased to $45.83 million or 27.90% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.77%.

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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