Buy-Rated Dividend Stocks In The Top 3: WGL, KMI, KMP

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."

WGL Holdings

Dividend Yield: 4.20%

WGL Holdings (NYSE: WGL) shares currently have a dividend yield of 4.20%.

WGL Holdings, Inc., through its subsidiaries, sells and delivers natural gas, and provides energy-related products and services. The company operates in four segments: Regulated Utility, Retail Energy-Marketing, Commercial Energy Systems, and Midstream Energy Services. The company has a P/E ratio of 121.00.

The average volume for WGL Holdings has been 251,200 shares per day over the past 30 days. WGL Holdings has a market cap of $2.2 billion and is part of the utilities industry. Shares are up 6.6% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates WGL Holdings as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 36.0%. Since the same quarter one year prior, revenues rose by 31.7%. 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 debt-to-equity ratio is somewhat low, currently at 0.70, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that WGL's debt-to-equity ratio is low, the quick ratio, which is currently 0.57, displays a potential problem in covering short-term cash needs.
  • WGL HOLDINGS INC's earnings per share declined by 31.8% 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, WGL HOLDINGS INC reported lower earnings of $1.55 versus $2.71 in the prior year. This year, the market expects an improvement in earnings ($2.45 versus $1.55).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Gas Utilities industry. The net income has significantly decreased by 31.5% when compared to the same quarter one year ago, falling from $89.84 million to $61.54 million.
  • In its most recent trading session, WGL 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. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.

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

Kinder Morgan

Dividend Yield: 4.70%

Kinder Morgan (NYSE: KMI) shares currently have a dividend yield of 4.70%.

Kinder Morgan, Inc. operates as a midstream and energy company in North America. It operates through Natural Gas Pipelines, CO2 KMP, Products Pipelines KMP, Terminals KMP, Kinder Morgan Canada KMP, and Other segments. The company has a P/E ratio of 31.40.

The average volume for Kinder Morgan has been 5,568,100 shares per day over the past 30 days. Kinder Morgan has a market cap of $37.1 billion and is part of the energy industry. Shares are down 0.1% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates Kinder Morgan as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 32.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Net operating cash flow has increased to $1,118.00 million or 45.76% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 17.51%.
  • 40.60% is the gross profit margin for KINDER MORGAN INC which we consider to be strong. Regardless of KMI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMI's net profit margin of 7.09% compares favorably to the industry average.
  • KINDER MORGAN INC reported flat earnings per share in the most recent quarter. 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, KINDER MORGAN INC reported lower earnings of $1.15 versus $1.22 in the prior year. This year, the market expects an improvement in earnings ($1.31 versus $1.15).
  • The change in net income from the same quarter one year ago has significantly 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 1.7% when compared to the same quarter one year ago, dropping from $292.00 million to $287.00 million.

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

Kinder Morgan Energy Partners

Dividend Yield: 6.80%

Kinder Morgan Energy Partners (NYSE: KMP) shares currently have a dividend yield of 6.80%.

Kinder Morgan Energy Partners, L.P. operates as a pipeline transportation and energy storage company in North America. The company has a P/E ratio of 23.35.

The average volume for Kinder Morgan Energy Partners has been 1,196,500 shares per day over the past 30 days. Kinder Morgan Energy Partners has a market cap of $26.0 billion and is part of the energy industry. Shares are up 0.8% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates Kinder Morgan Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust 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:
  • The revenue growth greatly exceeded the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 37.2%. 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 $1,074.00 million or 43.96% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 17.51%.
  • 40.55% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. Regardless of KMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMP's net profit margin of 20.42% significantly outperformed against the industry.
  • The change in net income from the same quarter one year ago has significantly 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 4.7% when compared to the same quarter one year ago, dropping from $783.00 million to $746.00 million.
  • KINDER MORGAN ENERGY -LP's earnings per share declined by 30.9% in the most recent quarter compared to the same quarter a year ago. 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, KINDER MORGAN ENERGY -LP increased its bottom line by earning $3.80 versus $1.64 in the prior year. For the next year, the market is expecting a contraction of 30.9% in earnings ($2.63 versus $3.80).

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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