Best Of The Buy-Rated Dividend Stocks: Top 3 Companies: ETR, HCP, TE

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

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."

Entergy

Dividend Yield: 4.30%

Entergy (NYSE: ETR) shares currently have a dividend yield of 4.30%.

Entergy Corporation, together with its subsidiaries, engages in the electric power production and retail electric distribution operations in the United States. It operates in two segments, Utility and Entergy Wholesale Commodities. The company has a P/E ratio of 16.67.

The average volume for Entergy has been 1,325,300 shares per day over the past 30 days. Entergy has a market cap of $13.9 billion and is part of the utilities industry. Shares are down 11.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Entergy as a buy. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year and attractive valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • 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. 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.
  • ENTERGY CORP's earnings per share declined by 26.3% 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, ENTERGY CORP increased its bottom line by earning $5.22 versus $3.98 in the prior year. This year, the market expects an improvement in earnings ($5.52 versus $5.22).
  • ETR, with its decline in revenue, underperformed when compared the industry average of 3.1%. Since the same quarter one year prior, revenues slightly dropped by 9.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for ENTERGY CORP is currently lower than what is desirable, coming in at 32.61%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 10.37% is above that of the industry average.

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HCP

Dividend Yield: 5.60%

HCP (NYSE: HCP) shares currently have a dividend yield of 5.60%.

HCP, Inc. is an independent hybrid real estate investment trust. The fund invests in real estate markets of the United States. The company has a P/E ratio of 20.77.

The average volume for HCP has been 3,679,300 shares per day over the past 30 days. HCP has a market cap of $18.6 billion and is part of the real estate industry. Shares are down 7.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates HCP as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • HCP's revenue growth has slightly outpaced the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 11.5%. 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 $365.60 million or 19.74% when compared to the same quarter last year. In addition, HCP INC has also vastly surpassed the industry average cash flow growth rate of -62.88%.
  • The gross profit margin for HCP INC is rather high; currently it is at 56.56%. Regardless of HCP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HCP's net profit margin of 32.03% compares favorably to the industry average.
  • HCP INC's earnings per share declined by 15.7% 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, HCP INC reported lower earnings of $1.95 versus $1.97 in the prior year. This year, the market expects an improvement in earnings ($1.99 versus $1.95).
  • In its most recent trading session, HCP 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. 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.

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TECO Energy

Dividend Yield: 4.70%

TECO Energy (NYSE: TE) shares currently have a dividend yield of 4.70%.

TECO Energy, Inc., an electric and gas utility holding company, engages in the regulated electric and gas utility operations. The company has a P/E ratio of 20.60.

The average volume for TECO Energy has been 2,034,700 shares per day over the past 30 days. TECO Energy has a market cap of $4.5 billion and is part of the utilities industry. Shares are down 7.2% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates TECO Energy as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, notable return on equity 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:
  • TE's revenue growth has slightly outpaced the industry average of 5.0%. Since the same quarter one year prior, revenues slightly increased by 1.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • TECO ENERGY INC has improved earnings per share by 22.7% 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 year. We feel that this trend should continue. During the past fiscal year, TECO ENERGY INC increased its bottom line by earning $0.92 versus $0.88 in the prior year. This year, the market expects an improvement in earnings ($1.10 versus $0.92).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multi-Utilities industry. The net income increased by 15.8% when compared to the same quarter one year prior, going from $50.10 million to $58.00 million.
  • 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 Multi-Utilities industry and the overall market on the basis of return on equity, TECO ENERGY INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.

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