Buy These Top 3 Buy-Rated Dividend Stocks Today: ALE, AVA, TCP

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."

ALLETE

Dividend Yield: 4.10%

ALLETE (NYSE: ALE) shares currently have a dividend yield of 4.10%.

ALLETE, Inc. operates as an energy company. The company operates through Regulated Operations, and Investments and Other segments. It generates electricity from coal-fired, hydro, wind, and biomass co-fired facilities. The company has a P/E ratio of 17.08.

The average volume for ALLETE has been 294,700 shares per day over the past 30 days. ALLETE has a market cap of $2.4 billion and is part of the utilities industry. Shares are down 10.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates ALLETE as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • ALE's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 8.5%. 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 $57.70 million or 14.25% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -0.87%.
  • The debt-to-equity ratio is somewhat low, currently at 0.86, 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 ALE's debt-to-equity ratio is low, the quick ratio, which is currently 0.56, displays a potential problem in covering short-term cash needs.
  • ALLETE INC's earnings per share declined by 11.0% 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, ALLETE INC increased its bottom line by earning $2.90 versus $2.63 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus $2.90).

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Avista

Dividend Yield: 4.10%

Avista (NYSE: AVA) shares currently have a dividend yield of 4.10%.

Avista Corporation, an electric and natural gas utility company, generates, transmits, and distributes electricity; and distributes natural gas in the United States and Canada. It operates in two segments, Avista Utilities and Alaska Electric Light and Power Company. The company has a P/E ratio of 16.67.

The average volume for Avista has been 351,400 shares per day over the past 30 days. Avista has a market cap of $2.0 billion and is part of the utilities industry. Shares are down 9% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Avista as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, reasonable valuation levels, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • AVA's revenue growth has slightly outpaced the industry average of 5.0%. Since the same quarter one year prior, revenues slightly increased by 1.9%. 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 net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Multi-Utilities industry average. The net income increased by 1.7% when compared to the same quarter one year prior, going from $31.67 million to $32.22 million.
  • AVISTA CORP's earnings per share declined by 5.9% 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, AVISTA CORP increased its bottom line by earning $1.94 versus $1.72 in the prior year. This year, the market expects an improvement in earnings ($1.98 versus $1.94).
  • In its most recent trading session, AVA 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. 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.

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TC Pipelines

Dividend Yield: 4.90%

TC Pipelines (NYSE: TCP) shares currently have a dividend yield of 4.90%.

TC PipeLines, LP acquires, owns, and participates in the management of energy infrastructure businesses in North America. The company has a P/E ratio of 25.87.

The average volume for TC Pipelines has been 162,000 shares per day over the past 30 days. TC Pipelines has a market cap of $4.4 billion and is part of the energy industry. Shares are down 3% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates TC Pipelines as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins, solid stock price performance, growth in earnings per share and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • 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 14.6% when compared to the same quarter one year prior, going from $41.00 million to $47.00 million.
  • The gross profit margin for TC PIPELINES LP is currently very high, coming in at 77.01%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 54.02% significantly outperformed against the industry average.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 28.35% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • TC PIPELINES LP has improved earnings per share by 12.7% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, TC PIPELINES LP increased its bottom line by earning $2.67 versus $2.13 in the prior year. This year, the market expects earnings to be in line with last year ($2.67 versus $2.67).
  • Despite the weak revenue results, TCP has significantly outperformed against the industry average of 33.1%. Since the same quarter one year prior, revenues slightly dropped by 1.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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