What To Buy: Top 3 Buy-Rated Dividend Stocks: DRI, ROIC, MO

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."

Darden Restaurants

Dividend Yield: 4.40%

Darden Restaurants (NYSE: DRI) shares currently have a dividend yield of 4.40%.

Darden Restaurants, Inc. owns and operates full service restaurants in the United States and Canada. It operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's Prime Seafood, and Wildfish Seafood Grille brand names. The company has a P/E ratio of 20.11.

The average volume for Darden Restaurants has been 1,389,000 shares per day over the past 30 days. Darden Restaurants has a market cap of $6.7 billion and is part of the leisure industry. Shares are down 6.8% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Darden Restaurants as a buy. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other 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:
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.8%. Since the same quarter one year prior, revenues slightly dropped by 1.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, DRI has underperformed the S&P 500 Index, declining 7.38% from its price level of one year ago. 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.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, DARDEN RESTAURANTS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Net operating cash flow has decreased to $363.70 million or 13.87% when compared to the same quarter last year. Despite a decrease in cash flow of 13.87%, DARDEN RESTAURANTS INC is in line with the industry average cash flow growth rate of -22.05%.

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

Retail Opportunity Investments

Dividend Yield: 4.10%

Retail Opportunity Investments (NASDAQ: ROIC) shares currently have a dividend yield of 4.10%.

Retail Opportunity Investments Corp., a real estate investment trust (REIT), engages in the acquisition, ownership, and management of necessity-based community and neighborhood shopping centers in the eastern and western regions of the United States. The company has a P/E ratio of 32.04.

The average volume for Retail Opportunity Investments has been 681,700 shares per day over the past 30 days. Retail Opportunity Investments has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 6.4% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Retail Opportunity Investments as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 47.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income increased by 36.8% when compared to the same quarter one year prior, rising from $2.29 million to $3.13 million.
  • RETAIL OPPORTUNITY INVTS CP reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RETAIL OPPORTUNITY INVTS CP increased its bottom line by earning $0.47 versus $0.15 in the prior year. For the next year, the market is expecting a contraction of 27.6% in earnings ($0.34 versus $0.47).
  • In its most recent trading session, ROIC 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. 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.
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RETAIL OPPORTUNITY INVTS CP's return on equity is below 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.

Altria Group

Dividend Yield: 4.80%

Altria Group (NYSE: MO) shares currently have a dividend yield of 4.80%.

Altria Group, Inc., through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States and internationally. The company has a P/E ratio of 18.67.

The average volume for Altria Group has been 7,670,900 shares per day over the past 30 days. Altria Group has a market cap of $80.1 billion and is part of the tobacco industry. Shares are up 4.3% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Altria Group as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 0.9%. 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.
  • Net operating cash flow has increased to $2,125.00 million or 18.51% when compared to the same quarter last year. In addition, ALTRIA GROUP INC has also vastly surpassed the industry average cash flow growth rate of -31.90%.
  • ALTRIA GROUP INC's earnings per share declined by 14.5% 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, ALTRIA GROUP INC increased its bottom line by earning $2.26 versus $2.06 in the prior year. This year, the market expects an improvement in earnings ($2.57 versus $2.26).
  • The gross profit margin for ALTRIA GROUP INC is rather high; currently it is at 57.41%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MO's net profit margin of 29.31% compares favorably to the industry average.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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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