Buy-Rated Dividend Stocks In The Top 3: POM, KKR, CLNY

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."

Pepco Holdings

Dividend Yield: 5.10%

Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 5.10%.

Pepco Holdings, Inc., through its subsidiaries, is engaged in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. The company has a P/E ratio of 45.16.

The average volume for Pepco Holdings has been 2,234,200 shares per day over the past 30 days. Pepco Holdings has a market cap of $5.3 billion and is part of the utilities industry. Shares are up 11.6% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Pepco Holdings 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 lackluster performance in the stock itself.

Highlights from the ratings report include:
  • POM's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 3.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • PEPCO HOLDINGS 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, PEPCO HOLDINGS INC reported lower earnings of $0.34 versus $0.95 in the prior year. This year, the market expects an improvement in earnings ($1.21 versus $0.34).
  • Net operating cash flow has increased to $230.00 million or 32.94% when compared to the same quarter last year. Despite an increase in cash flow, PEPCO HOLDINGS INC's average is still marginally south of the industry average growth rate of 42.94%.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Electric Utilities industry average, but is greater than that of the S&P 500. The net income increased by 34.9% when compared to the same quarter one year prior, rising from $43.00 million to $58.00 million.
  • The gross profit margin for PEPCO HOLDINGS INC is currently lower than what is desirable, coming in at 25.66%. Regardless of POM's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.31% trails 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.

KKR

Dividend Yield: 8.30%

KKR (NYSE: KKR) shares currently have a dividend yield of 8.30%.

Kohlberg Kravis Roberts & Co. is a private equity investment firm specializing in acquisitions, leveraged buyouts, management buyouts, special situations, growth equity, mature, distressed, and middle market investments. The company has a P/E ratio of 10.18.

The average volume for KKR has been 2,525,600 shares per day over the past 30 days. KKR has a market cap of $6.6 billion and is part of the financial services industry. Shares are down 5.3% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates KKR as a buy. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, growth in earnings per share, compelling growth in net income and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • 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.
  • KKR & CO LP 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, KKR & CO LP increased its bottom line by earning $2.29 versus $2.23 in the prior year. This year, the market expects an improvement in earnings ($2.38 versus $2.29).
  • 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 187.3% when compared to the same quarter one year prior, rising from $96.73 million to $277.91 million.
  • KKR, with its decline in revenue, underperformed when compared the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 29.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Capital Markets industry and the overall market, KKR & CO LP's return on equity significantly exceeds that of both the industry average and 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.

Colony Financial

Dividend Yield: 6.50%

Colony Financial (NYSE: CLNY) shares currently have a dividend yield of 6.50%.

Colony Financial, Inc., a real estate investment and finance company, focuses on acquiring, originating, and managing various real estate-related debt and equity investments. The company has a P/E ratio of 18.34.

The average volume for Colony Financial has been 1,138,400 shares per day over the past 30 days. Colony Financial has a market cap of $2.0 billion and is part of the real estate industry. Shares are up 5.5% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Colony Financial as a buy. The company's strengths can be seen in multiple areas, such as its robust 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:
  • CLNY's very impressive revenue growth greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues leaped by 78.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for COLONY FINANCIAL INC is currently very high, coming in at 78.13%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 51.79% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $33.74 million or 35.86% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 11.11%.
  • 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 60.2% when compared to the same quarter one year prior, rising from $18.88 million to $30.26 million.
  • COLONY FINANCIAL INC has improved earnings per share by 9.7% 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, COLONY FINANCIAL INC reported lower earnings of $1.19 versus $1.34 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus $1.19).

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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