3 Buy-Rated Dividend Stocks Leading The Pack: PNW, PSEC, WPZ

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."

Pinnacle West Capital Corporation

Dividend Yield: 4.10%

Pinnacle West Capital Corporation (NYSE: PNW) shares currently have a dividend yield of 4.10%.

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 15.05.

The average volume for Pinnacle West Capital Corporation has been 983,700 shares per day over the past 30 days. Pinnacle West Capital Corporation has a market cap of $6.1 billion and is part of the utilities industry. Shares are up 4.4% 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, good cash flow from operations, reasonable valuation levels and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 0.9%. 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 0.83, 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 0.19 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • PINNACLE WEST CAPITAL CORP's earnings per share declined by 8.3% 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 $3.66 versus $3.50 in the prior year. This year, the market expects an improvement in earnings ($3.70 versus $3.66).
  • Net operating cash flow has increased to $270.98 million or 12.13% when compared to the same quarter last year. Despite an increase in cash flow, PINNACLE WEST CAPITAL CORP's cash flow growth rate is still lower than the industry average growth rate of 25.33%.

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

Prospect Capital Corporation

Dividend Yield: 12.00%

Prospect Capital Corporation (NASDAQ: PSEC) shares currently have a dividend yield of 12.00%.

Prospect Capital Corporation is a business development company. The company has a P/E ratio of 9.49.

The average volume for Prospect Capital Corporation has been 4,257,100 shares per day over the past 30 days. Prospect Capital Corporation has a market cap of $3.4 billion and is part of the financial services industry. Shares are down 1.9% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Prospect Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, attractive valuation levels, good cash flow from operations and expanding profit margins. 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 16.7%. Since the same quarter one year prior, revenues slightly increased by 7.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving 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 Capital Markets industry. The net income increased by 83.6% when compared to the same quarter one year prior, rising from $46.49 million to $85.36 million.
  • Net operating cash flow has significantly increased by 52.42% to -$290.63 million when compared to the same quarter last year. In addition, PROSPECT CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of -6.95%.
  • The gross profit margin for PROSPECT CAPITAL CORP is rather high; currently it is at 68.21%. Regardless of PSEC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PSEC's net profit margin of 47.93% significantly outperformed against the industry.

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

Williams Partners

Dividend Yield: 7.20%

Williams Partners (NYSE: WPZ) shares currently have a dividend yield of 7.20%.

Williams Partners L.P., an energy infrastructure company, focuses on connecting North America's hydrocarbon resource plays to growing markets for natural gas and natural gas liquids (NGL). It operates in two segments, Gas Pipeline and Midstream Gas & Liquids. The company has a P/E ratio of 34.33.

The average volume for Williams Partners has been 691,900 shares per day over the past 30 days. Williams Partners has a market cap of $21.8 billion and is part of the energy industry. Shares are down 2.1% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Williams Partners as a buy. Among the primary strengths of the company is its expanding profit margins over time. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • 39.54% is the gross profit margin for WILLIAMS PARTNERS LP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.05% is above that of the industry average.
  • WILLIAMS 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. 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, WILLIAMS PARTNERS LP reported lower earnings of $1.45 versus $1.94 in the prior year. This year, the market expects an improvement in earnings ($2.17 versus $1.45).
  • WPZ, with its decline in revenue, slightly underperformed the industry average of 3.8%. Since the same quarter one year prior, revenues fell by 11.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 27.5% when compared to the same quarter one year ago, falling from $291.00 million to $211.00 million.
  • In its most recent trading session, WPZ 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. Despite the decline in its share price over the last year, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry. We feel, however, that other strengths this company displays compensate for this.

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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