Buy-Rated Dividend Stocks In The Top 3: ETP, KMI, PNW

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."

Energy Transfer Partners L.P

Dividend Yield: 6.80%

Energy Transfer Partners L.P (NYSE: ETP) shares currently have a dividend yield of 6.80%.

Energy Transfer Partners, L.P. engages in the natural gas midstream, and intrastate transportation and storage businesses in the United States. The company has a P/E ratio of 37.34.

The average volume for Energy Transfer Partners L.P has been 927,600 shares per day over the past 30 days. Energy Transfer Partners L.P has a market cap of $20.6 billion and is part of the energy industry. Shares are down 5.4% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Energy Transfer Partners L.P 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, increase in stock price during the past year and increase in net income. 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:
  • ETP's very impressive revenue growth greatly exceeded the industry average of 1.9%. Since the same quarter one year prior, revenues leaped by 560.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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.
  • 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 886.1% when compared to the same quarter one year prior, rising from $36.00 million to $355.00 million.
  • Net operating cash flow has significantly increased by 70.78% to $578.00 million when compared to the same quarter last year. In addition, ENERGY TRANSFER PARTNERS -LP has also vastly surpassed the industry average cash flow growth rate of -48.26%.

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

Kinder Morgan

Dividend Yield: 4.90%

Kinder Morgan (NYSE: KMI) shares currently have a dividend yield of 4.90%.

Kinder Morgan, Inc. owns and operates energy transportation and storage assets in the United States and Canada. The company operates in six segments: Natural Gas Pipelines, Products Pipelines KMP, CO2 KMP, Terminals KMP, Kinder Morgan Canada KMP, and Other. The company has a P/E ratio of 29.38.

The average volume for Kinder Morgan has been 6,011,000 shares per day over the past 30 days. Kinder Morgan has a market cap of $35.0 billion and is part of the energy industry. Shares are down 5.7% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Kinder Morgan as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, growth in earnings per share, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.9%. Since the same quarter one year prior, revenues rose by 25.8%. Growth in the company's revenue appears to have helped boost the 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 53.6% when compared to the same quarter one year prior, rising from $220.00 million to $338.00 million.
  • KINDER MORGAN INC reported significant earnings per share improvement 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, KINDER MORGAN INC reported lower earnings of $1.15 versus $1.22 in the prior year. This year, the market expects an improvement in earnings ($1.25 versus $1.15).
  • 42.33% is the gross profit margin for KINDER MORGAN INC which we consider to be strong. Regardless of KMI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMI's net profit margin of 8.72% compares favorably to 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, KINDER MORGAN INC's return on equity is significantly below that of the industry average and is below 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.

Pinnacle West Capital Corporation

Dividend Yield: 4.30%

Pinnacle West Capital Corporation (NYSE: PNW) shares currently have a dividend yield of 4.30%.

Pinnacle West Capital Corporation, through its subsidiary, Arizona Public Service Company, provides retail and wholesale electric services primarily in the State of Arizona. The company has a P/E ratio of 14.42.

The average volume for Pinnacle West Capital Corporation has been 921,500 shares per day over the past 30 days. Pinnacle West Capital Corporation has a market cap of $5.8 billion and is part of the utilities industry. Shares are up 1.6% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Pinnacle West Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins 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:
  • PNW's revenue growth has slightly outpaced the industry average of 0.1%. 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.
  • The debt-to-equity ratio is somewhat low, currently at 0.79, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.39 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • 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 Electric Utilities industry and the overall market on the basis of return on equity, PINNACLE WEST CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • PINNACLE WEST CAPITAL CORP's earnings per share declined 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, PINNACLE WEST CAPITAL CORP increased its bottom line by earning $3.50 versus $2.99 in the prior year. This year, the market expects an improvement in earnings ($3.63 versus $3.50).
  • 45.39% is the gross profit margin for PINNACLE WEST CAPITAL CORP which we consider to be strong. Regardless of PNW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PNW's net profit margin of 19.62% compares favorably to 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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