Buy-Rated Dividend Stocks: Top 3 Companies: MIC, RAI, SNP

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."

Macquarie Infrastructure

Dividend Yield: 6.30%

Macquarie Infrastructure (NYSE: MIC) shares currently have a dividend yield of 6.30%.

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 70.48.

The average volume for Macquarie Infrastructure has been 289,200 shares per day over the past 30 days. Macquarie Infrastructure has a market cap of $3.4 billion and is part of the transportation industry. Shares are up 10.4% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Macquarie Infrastructure 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, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

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 ($1.39 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 246.9% when compared to the same quarter one year prior, rising from $5.87 million to $20.37 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.5%. Since the same quarter one year prior, revenues slightly increased by 4.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Net operating cash flow has significantly increased by 75.46% to $59.08 million when compared to the same quarter last year. In addition, MACQUARIE INFRASTRUCT CO LLC has also vastly surpassed the industry average cash flow growth rate of -6.14%.
  • 41.53% 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 7.37% significantly 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.

Reynolds American

Dividend Yield: 4.70%

Reynolds American (NYSE: RAI) shares currently have a dividend yield of 4.70%.

Reynolds American Inc., together with its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The company operates through RJR Tobacco, American Snuff, and Santa Fe segments. The company has a P/E ratio of 19.81.

The average volume for Reynolds American has been 2,864,500 shares per day over the past 30 days. Reynolds American has a market cap of $30.3 billion and is part of the tobacco industry. Shares are up 14.7% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Reynolds American as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, expanding profit margins and solid stock price performance. 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 3.2%. Since the same quarter one year prior, revenues slightly increased by 2.8%. 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.
  • 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 Tobacco industry and the overall market, REYNOLDS AMERICAN INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • REYNOLDS AMERICAN INC's earnings per share declined by 31.5% 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, REYNOLDS AMERICAN INC increased its bottom line by earning $3.14 versus $2.24 in the prior year. This year, the market expects an improvement in earnings ($3.35 versus $3.14).
  • The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 53.13%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 18.75% trails the industry average.
  • 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. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the 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.

China Petroleum & Chemical

Dividend Yield: 4.80%

China Petroleum & Chemical (NYSE: SNP) shares currently have a dividend yield of 4.80%.

China Petroleum & Chemical Corporation, an energy and chemical company, through its subsidiaries, is engaged in the oil and gas, and chemical operations in the People's Republic of China. The company has a P/E ratio of 18.43.

The average volume for China Petroleum & Chemical has been 228,400 shares per day over the past 30 days. China Petroleum & Chemical has a market cap of $105.5 billion and is part of the energy industry. Shares are up 10.8% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates China Petroleum & Chemical as a buy.

Highlights from the ratings report include:
  • 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. 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.
  • CHINA PETROLEUM & CHEM CORP's earnings per share declined by 36.5% 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, CHINA PETROLEUM & CHEM CORP reported lower earnings of $8.47 versus $8.73 in the prior year. This year, the market expects an improvement in earnings ($10.56 versus $8.47).
  • SNP, with its decline in revenue, slightly underperformed the industry average of 3.3%. Since the same quarter one year prior, revenues slightly dropped by 7.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 15.4% when compared to the same quarter one year ago, dropping from $2,685.16 million to $2,271.57 million.

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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