Buy-Rated Dividend Stocks: Top 3 Companies: HE, T, CVI

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."

Hawaiian Electric Industries

Dividend Yield: 4.80%

Hawaiian Electric Industries (NYSE: HE) shares currently have a dividend yield of 4.80%.

Hawaiian Electric Industries, Inc., through its subsidiaries, is engaged in electric utility and banking businesses primarily in the State of Hawaii. The company is involved in the production, purchase, transmission, distribution, and sale of electricity. The company has a P/E ratio of 14.84.

The average volume for Hawaiian Electric Industries has been 857,600 shares per day over the past 30 days. Hawaiian Electric Industries has a market cap of $2.6 billion and is part of the utilities industry. Shares are down 2.6% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Hawaiian Electric Industries as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, largely solid financial position with reasonable debt levels by most measures, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 5.5%. Since the same quarter one year prior, revenues slightly increased by 0.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • HAWAIIAN ELECTRIC INDS reported flat earnings per share in the most recent quarter. 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, HAWAIIAN ELECTRIC INDS increased its bottom line by earning $1.62 versus $1.43 in the prior year. This year, the market expects an improvement in earnings ($1.63 versus $1.62).
  • 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 Electric Utilities industry and the overall market on the basis of return on equity, HAWAIIAN ELECTRIC INDS has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Even though the current debt-to-equity ratio is 1.08, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Electric Utilities industry average, but is greater than that of the S&P 500. The net income increased by 2.0% when compared to the same quarter one year prior, going from $41.06 million to $41.89 million.

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