Buy-Rated Dividend Stocks: Top 3 Companies: ED, PSEC, 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 which could 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."

Consolidated Edison

Dividend Yield: 4.50%

Consolidated Edison (NYSE: ED) shares currently have a dividend yield of 4.50%.

Consolidated Edison, Inc. is engaged in regulated electric, gas, and steam delivery businesses in the United States. The company has a P/E ratio of 15.07.

The average volume for Consolidated Edison has been 2,475,100 shares per day over the past 30 days. Consolidated Edison has a market cap of $16.3 billion and is part of the utilities industry. Shares are up 1.1% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Consolidated Edison as a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • Net operating cash flow has increased to $1,314.00 million or 36.73% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -2.77%.
  • CONSOLIDATED EDISON INC has improved earnings per share by 12.9% 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, CONSOLIDATED EDISON INC reported lower earnings of $3.61 versus $3.86 in the prior year. This year, the market expects an improvement in earnings ($3.75 versus $3.61).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.2%. Since the same quarter one year prior, revenues slightly dropped by 1.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Multi-Utilities industry average. The net income increased by 13.0% when compared to the same quarter one year prior, going from $207.00 million to $234.00 million.

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: 12.30%

Prospect Capital Corporation (NASDAQ: PSEC) shares currently have a dividend yield of 12.30%.

Prospect Capital Corporation is a business development company. The company has a P/E ratio of 9.30.

The average volume for Prospect Capital Corporation has been 4,854,200 shares per day over the past 30 days. Prospect Capital Corporation has a market cap of $3.3 billion and is part of the financial services industry. Shares are down 3.4% year-to-date as of the close of trading on Monday.

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, expanding profit margins, good cash flow from operations and growth in earnings per share. 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 7.7%. 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.
  • 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.
  • Net operating cash flow has significantly increased by 52.42% to -$290.63 million when compared to the same quarter last year. Despite an increase in cash flow of 52.42%, PROSPECT CAPITAL CORP is still growing at a significantly lower rate than the industry average of 124.57%.
  • PROSPECT CAPITAL CORP has improved earnings per share by 25.0% 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, PROSPECT CAPITAL CORP reported lower earnings of $1.07 versus $1.69 in the prior year. This year, the market expects an improvement in earnings ($1.28 versus $1.07).

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: 8.80%

Ares Capital Corporation (NASDAQ: ARCC) shares currently have a dividend yield of 8.80%.

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 9.51.

The average volume for Ares Capital Corporation has been 2,002,600 shares per day over the past 30 days. Ares Capital Corporation has a market cap of $5.1 billion and is part of the financial services industry. Shares are down 2.9% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Ares Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 7.7%. Since the same quarter one year prior, revenues rose by 10.2%. 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 gross profit margin for ARES CAPITAL CORP is rather high; currently it is at 69.04%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 57.27% significantly outperformed against the industry average.
  • 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • ARES CAPITAL CORP's earnings per share declined by 33.8% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, ARES CAPITAL CORP reported lower earnings of $1.81 versus $2.20 in the prior year. For the next year, the market is expecting a contraction of 11.0% in earnings ($1.61 versus $1.81).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has decreased by 23.6% when compared to the same quarter one year ago, dropping from $175.14 million to $133.88 million.

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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