Best Of The Buy-Rated Dividend Stocks: Top 3 Companies: AI, BKCC, WSR

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."

Arlington Asset Investment

Dividend Yield: 13.50%

Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 13.50%.

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 9.08.

The average volume for Arlington Asset Investment has been 281,000 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $494.2 million and is part of the real estate industry. Shares are down 2% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Arlington Asset Investment as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 166.10% to $19.82 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 130.08%.
  • The gross profit margin for ARLINGTON ASSET INVESTMENT is rather high; currently it is at 54.48%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, AI's net profit margin of 374.22% significantly outperformed against the industry.
  • ARLINGTON ASSET INVESTMENT 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, ARLINGTON ASSET INVESTMENT reported lower earnings of $2.96 versus $15.11 in the prior year. This year, the market expects an improvement in earnings ($3.82 versus $2.96).
  • The revenue fell significantly faster than the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 46.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • In its most recent trading session, AI 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.

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

BlackRock Kelso Capital Corporation

Dividend Yield: 11.30%

BlackRock Kelso Capital Corporation (NASDAQ: BKCC) shares currently have a dividend yield of 11.30%.

BlackRock Kelso Capital Corporation is a private equity firm specializing in investments in middle market companies. The firm invests in all industries. The company has a P/E ratio of 7.77.

The average volume for BlackRock Kelso Capital Corporation has been 554,500 shares per day over the past 30 days. BlackRock Kelso Capital Corporation has a market cap of $684.8 million and is part of the financial services industry. Shares are down 1.5% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates BlackRock Kelso Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • 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 1698.2% when compared to the same quarter one year prior, rising from $1.74 million to $31.33 million.
  • 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 Capital Markets industry and the overall market on the basis of return on equity, BLACKROCK KELSO CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • BLACKROCK KELSO CAPITAL CORP 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, BLACKROCK KELSO CAPITAL CORP increased its bottom line by earning $1.20 versus $0.78 in the prior year. For the next year, the market is expecting a contraction of 22.5% in earnings ($0.93 versus $1.20).
  • BKCC, with its decline in revenue, slightly underperformed the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 13.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • In its most recent trading session, BKCC 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.

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

Whitestone REIT

Dividend Yield: 8.10%

Whitestone REIT (NYSE: WSR) shares currently have a dividend yield of 8.10%.

WhiteStone REIT is a Maryland REIT engaged in owning and operating commercial properties in culturally diverse markets in major metropolitan areas. The company has a P/E ratio of 73.25.

The average volume for Whitestone REIT has been 98,000 shares per day over the past 30 days. Whitestone REIT has a market cap of $307.7 million and is part of the real estate industry. Shares are up 4.8% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Whitestone REIT as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 27.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • WHITESTONE REIT 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, WHITESTONE REIT increased its bottom line by earning $0.21 versus $0.04 in the prior year. This year, the market expects an improvement in earnings ($0.23 versus $0.21).
  • 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 191.4% when compared to the same quarter one year prior, rising from -$1.38 million to $1.26 million.
  • Net operating cash flow has significantly increased by 606.01% to $9.16 million when compared to the same quarter last year. In addition, WHITESTONE REIT has also vastly surpassed the industry average cash flow growth rate of 11.11%.

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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