3 Buy-Rated Dividend Stocks To Check Out: RRD, HT, ARCC

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."

RR Donnelley & Sons

Dividend Yield: 5.60%

RR Donnelley & Sons (NASDAQ: RRD) shares currently have a dividend yield of 5.60%.

R.R. Donnelley & Sons Company provides integrated communications solutions to private and public sector clients in the United States and internationally. The company operates through Publishing and Retail Services, Variable Print, Strategic Services, and International segments. The company has a P/E ratio of 31.53.

The average volume for RR Donnelley & Sons has been 1,746,100 shares per day over the past 30 days. RR Donnelley & Sons has a market cap of $3.7 billion and is part of the diversified services industry. Shares are up 10.7% year-to-date as of the close of trading on Wednesday.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

TheStreet Ratings rates RR Donnelley & Sons as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.0%. Since the same quarter one year prior, revenues rose by 11.4%. 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 $468.80 million or 20.91% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -11.57%.
  • 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.
  • DONNELLEY (R R) & SONS CO 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, DONNELLEY (R R) & SONS CO reported lower earnings of $0.58 versus $1.15 in the prior year. This year, the market expects an improvement in earnings ($1.56 versus $0.58).
  • The debt-to-equity ratio is very high at 6.12 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, RRD's quick ratio is somewhat strong at 1.08, demonstrating the ability to handle short-term liquidity needs.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

Hersha Hospitality

Dividend Yield: 4.40%

Hersha Hospitality (NYSE: HT) shares currently have a dividend yield of 4.40%.

Operates as a Maryland REIT that focuses primarily on owning and operating high quality, upscale and mid-scale limited service and extended-stay hotels. Its portfolio consisted of 31 wholly-owned limited and full service properties and joint venture investments in 16 hotels as of Dec. 31, 2005. The company has a P/E ratio of 23.59.

The average volume for Hersha Hospitality has been 2,123,700 shares per day over the past 30 days. Hersha Hospitality has a market cap of $1.3 billion and is part of the real estate industry. Shares are down 9.4% year-to-date as of the close of trading on Wednesday.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

TheStreet Ratings rates Hersha Hospitality as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth 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 low profit margins.

Highlights from the ratings report include:
  • HT's revenue growth has slightly outpaced the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 19.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 34.3% when compared to the same quarter one year prior, rising from -$6.01 million to -$3.95 million.
  • 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. 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.
  • HERSHA HOSPITALITY TRUST reported flat earnings per share in the most recent quarter. 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, HERSHA HOSPITALITY TRUST increased its bottom line by earning $0.27 versus $0.02 in the prior year. For the next year, the market is expecting a contraction of 48.1% in earnings ($0.14 versus $0.27).

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

Ares Capital Corporation

Dividend Yield: 9.40%

Ares Capital Corporation (NASDAQ: ARCC) shares currently have a dividend yield of 9.40%.

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. The company has a P/E ratio of 8.46.

The average volume for Ares Capital Corporation has been 2,005,100 shares per day over the past 30 days. Ares Capital Corporation has a market cap of $5.1 billion and is part of the financial services industry. Shares are up 4.1% year-to-date as of the close of trading on Wednesday.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

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

Highlights from the ratings report include:
  • ARCC's revenue growth has slightly outpaced the industry average of 4.4%. Since the same quarter one year prior, revenues slightly increased by 5.6%. 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.
  • The gross profit margin for ARES CAPITAL CORP is currently very high, coming in at 72.57%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 39.71% significantly outperformed against the industry average.
  • Net operating cash flow has significantly increased by 977.74% to $575.81 million when compared to the same quarter last year. In addition, ARES CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of 141.38%.
  • 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 Capital Markets industry and the overall market on the basis of return on equity, ARES CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • ARES CAPITAL CORP's earnings per share declined by 17.9% 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, ARES CAPITAL CORP increased its bottom line by earning $1.93 versus $1.81 in the prior year. For the next year, the market is expecting a contraction of 16.1% in earnings ($1.62 versus $1.93).

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

Other helpful dividend tools from TheStreet:

More from Markets

REPLAY: Jim Cramer on How to Navigate the Stock Market Amid Tariff Worries

REPLAY: Jim Cramer on How to Navigate the Stock Market Amid Tariff Worries

Global Markets Hit Hard; AMC Entertainment Sells Stake in Ad Unit -- ICYMI

Global Markets Hit Hard; AMC Entertainment Sells Stake in Ad Unit -- ICYMI

CVS, Walgreens and Citigroup: Cramer's 'Off the Charts'

CVS, Walgreens and Citigroup: Cramer's 'Off the Charts'

Jim Cramer: 4 Stocks Could Get Throttled By a 'Knock Down Drag Out' With China

Jim Cramer: 4 Stocks Could Get Throttled By a 'Knock Down Drag Out' With China

General Electric Booted From Dow, Replaced by Walgreens

General Electric Booted From Dow, Replaced by Walgreens