Best Of The Buy-Rated Dividend Stocks: Top 3 Companies: RDS.B, SO, VIV

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."

Royal Dutch Shell

Dividend Yield: 4.40%

Royal Dutch Shell (NYSE: RDS.B) shares currently have a dividend yield of 4.40%.

Royal Dutch Shell plc operates as an independent oil and gas company worldwide. The company explores for and extracts crude oil, natural gas, and natural gas liquids. The company has a P/E ratio of 10.78.

The average volume for Royal Dutch Shell has been 725,600 shares per day over the past 30 days. Royal Dutch Shell has a market cap of $271.6 billion and is part of the energy industry. Shares are up 13.7% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Royal Dutch Shell as a buy. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, good cash flow from operations, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. 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 increased to $13,984.00 million or 20.97% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 5.61%.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
  • RDS.B's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.82 is somewhat weak and could be cause for future problems.
  • ROYAL DUTCH SHELL PLC's earnings per share declined by 44.2% in the most recent quarter compared to 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, ROYAL DUTCH SHELL PLC reported lower earnings of $5.18 versus $8.52 in the prior year. This year, the market expects an improvement in earnings ($14.16 versus $5.18).

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: 4.70%

Southern (NYSE: SO) shares currently have a dividend yield of 4.70%.

The Southern Company, together with its subsidiaries, operates as a public electric utility company. The company has a P/E ratio of 21.81.

The average volume for Southern has been 4,442,200 shares per day over the past 30 days. Southern has a market cap of $39.7 billion and is part of the utilities industry. Shares are up 7.9% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Southern as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and growth in earnings per share. 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 8.3%. Since the same quarter one year prior, revenues rose by 19.2%. Growth in the company's revenue appears to have helped boost 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 Electric Utilities industry. The net income increased by 279.4% when compared to the same quarter one year prior, rising from $97.00 million to $368.00 million.
  • SOUTHERN CO 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, SOUTHERN CO reported lower earnings of $1.87 versus $2.67 in the prior year. This year, the market expects an improvement in earnings ($2.77 versus $1.87).
  • SO has underperformed the S&P 500 Index, declining 5.48% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.
  • The gross profit margin for SOUTHERN CO is currently lower than what is desirable, coming in at 33.96%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 7.92% trails that of 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.

Telefonica Brasil

Dividend Yield: 7.30%

Telefonica Brasil (NYSE: VIV) shares currently have a dividend yield of 7.30%.

Telefonica Brasil S.A. provides fixed-line telecommunications services to residential and commercial customers in Brazil. The company has a P/E ratio of 6.48.

The average volume for Telefonica Brasil has been 1,976,900 shares per day over the past 30 days. Telefonica Brasil has a market cap of $23.8 billion and is part of the telecommunications industry. Shares are up 11.1% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Telefonica Brasil as a buy. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, 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 has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • The gross profit margin for TELEFONICA BRASIL SA is rather high; currently it is at 64.32%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 14.45% is above that of the industry average.
  • VIV's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.91 is somewhat weak and could be cause for future problems.
  • VIV, with its decline in revenue, underperformed when compared the industry average of 2.3%. Since the same quarter one year prior, revenues fell by 25.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The share price of TELEFONICA BRASIL SA has not done very well: it is down 19.79% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.

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