Best Of The Buy-Rated Dividend Stocks: Top 3 Companies: STWD, SO, MIC

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."

Starwood Property

Dividend Yield: 8.50%

Starwood Property (NYSE: STWD) shares currently have a dividend yield of 8.50%.

Starwood Property Trust, Inc. originates, acquires, finances, and manages commercial mortgage loans, other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate-related debt investments in the United States and Europe. The company has a P/E ratio of 13.09.

The average volume for Starwood Property has been 2,722,200 shares per day over the past 30 days. Starwood Property has a market cap of $4.4 billion and is part of the real estate industry. Shares are down 18.6% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Starwood Property as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, compelling growth in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • STWD's very impressive revenue growth greatly exceeded the industry average of 6.8%. Since the same quarter one year prior, revenues leaped by 110.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • STARWOOD PROPERTY TRUST INC has improved earnings per share by 14.3% 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, STARWOOD PROPERTY TRUST INC increased its bottom line by earning $1.82 versus $1.78 in the prior year. This year, the market expects an improvement in earnings ($2.15 versus $1.82).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 68.6% when compared to the same quarter one year prior, rising from $56.33 million to $94.97 million.
  • Net operating cash flow has significantly increased by 1662.19% to $601.46 million when compared to the same quarter last year. In addition, STARWOOD PROPERTY TRUST INC has also vastly surpassed the industry average cash flow growth rate of 11.04%.
  • 45.34% is the gross profit margin for STARWOOD PROPERTY TRUST INC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, STWD's net profit margin of 49.97% 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.

Southern

Dividend Yield: 4.60%

Southern (NYSE: SO) shares currently have a dividend yield of 4.60%.

The Southern Company, together with its subsidiaries, operates as a public electric utility company. The company has a P/E ratio of 23.24.

The average volume for Southern has been 4,394,600 shares per day over the past 30 days. Southern has a market cap of $39.6 billion and is part of the utilities industry. Shares are up 8.6% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Southern as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, 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:
  • SO's revenue growth has slightly outpaced the industry average of 3.0%. Since the same quarter one year prior, revenues slightly increased by 6.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 97.42% to $1,686.00 million when compared to the same quarter last year. In addition, SOUTHERN CO has also vastly surpassed the industry average cash flow growth rate of 42.87%.
  • SOUTHERN CO has improved earnings per share by 9.3% 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, SOUTHERN CO reported lower earnings of $1.87 versus $2.67 in the prior year. This year, the market expects an improvement in earnings ($2.76 versus $1.87).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electric Utilities industry. The net income increased by 8.0% when compared to the same quarter one year prior, going from $399.00 million to $431.00 million.
  • Even though the current debt-to-equity ratio is 1.16, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.37 is very low and demonstrates very weak liquidity.

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

Macquarie Infrastructure Company

Dividend Yield: 6.60%

Macquarie Infrastructure Company (NYSE: MIC) shares currently have a dividend yield of 6.60%.

Macquarie Infrastructure Company LLC, through its subsidiaries, owns, operates, and invests in infrastructure businesses that provide services to businesses and individuals primarily in the United States. The company has a P/E ratio of 91.59.

The average volume for Macquarie Infrastructure Company has been 311,700 shares per day over the past 30 days. Macquarie Infrastructure Company has a market cap of $3.1 billion and is part of the transportation industry. Shares are up 1.6% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Macquarie Infrastructure Company as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • MACQUARIE INFRASTRUCT CO LLC reported significant earnings per share improvement 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, MACQUARIE INFRASTRUCT CO LLC increased its bottom line by earning $0.60 versus $0.29 in the prior year. This year, the market expects an improvement in earnings ($1.29 versus $0.60).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Transportation Infrastructure industry. The net income increased by 257.8% when compared to the same quarter one year prior, rising from -$10.03 million to $15.82 million.
  • MIC's revenue growth trails the industry average of 14.3%. Since the same quarter one year prior, revenues slightly increased by 3.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 41.63% is the gross profit margin for MACQUARIE INFRASTRUCT CO LLC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MIC's net profit margin of 6.07% significantly trails the industry average.
  • MIC's debt-to-equity ratio of 0.96 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.30 is sturdy.

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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