Best Of The Buy-Rated Dividend Stocks: Top 3 Companies: BP, AZN, 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."

BP

Dividend Yield: 4.80%

BP (NYSE: BP) shares currently have a dividend yield of 4.80%.

BP p.l.c. provides fuel for transportation, energy for heat and light, lubricants to engines, and petrochemicals products worldwide. The company has a P/E ratio of 6.63.

The average volume for BP has been 3,861,500 shares per day over the past 30 days. BP has a market cap of $150.5 billion and is part of the energy industry. Shares are up 1.5% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates BP as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, attractive valuation levels, good cash flow from operations 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 disappointing return on equity.

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.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 65.0% when compared to the same quarter one year prior, rising from $2,042.00 million to $3,369.00 million.
  • Net operating cash flow has increased to $7,877.00 million or 46.22% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 18.80%.
  • The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.93 is somewhat weak and could be cause for future problems.

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

AstraZeneca

Dividend Yield: 5.20%

AstraZeneca (NYSE: AZN) shares currently have a dividend yield of 5.20%.

AstraZeneca PLC is engaged in the discovery, development, and commercialization of medicines for cardiovascular and metabolic disease; oncology; respiratory, inflammation, and autoimmunity; and infection, neuroscience, and gastrointestinal disease areas worldwide. The company has a P/E ratio of 35.58.

The average volume for AstraZeneca has been 4,224,200 shares per day over the past 30 days. AstraZeneca has a market cap of $91.7 billion and is part of the drugs industry. Shares are up 24.1% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates AstraZeneca as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, 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:
  • AZN's revenue growth has slightly outpaced the industry average of 5.4%. 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.
  • The gross profit margin for ASTRAZENECA PLC is currently very high, coming in at 90.79%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, AZN's net profit margin of 7.66% significantly trails the industry average.
  • Compared to its closing price of one year ago, AZN's share price has jumped by 43.51%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp 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 other strengths this company displays justify these higher price levels.
  • ASTRAZENECA PLC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, ASTRAZENECA PLC reported lower earnings of $2.04 versus $4.94 in the prior year. This year, the market expects an improvement in earnings ($4.29 versus $2.04).
  • Despite currently having a low debt-to-equity ratio of 0.48, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further.

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: 6.90%

Kinder Morgan Energy Partners (NYSE: KMP) shares currently have a dividend yield of 6.90%.

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 20.96.

The average volume for Kinder Morgan Energy Partners has been 1,092,000 shares per day over the past 30 days. Kinder Morgan Energy Partners has a market cap of $26.2 billion and is part of the energy industry. Shares are up 0.7% year-to-date as of the close of trading on Monday.

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, expanding profit margins and good cash flow from operations. 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 came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 18.6%. 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.
  • 39.03% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 18.47% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $1,175.00 million or 20.02% when compared to the same quarter last year. In addition, KINDER MORGAN ENERGY -LP has also modestly surpassed the industry average cash flow growth rate of 18.80%.
  • KINDER MORGAN ENERGY -LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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 30.1% in earnings ($2.66 versus $3.80).
  • 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, KINDER MORGAN ENERGY -LP has underperformed in comparison with the industry average, but has exceeded that of 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.

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