Top 3 Yielding Buy-Rated Stocks: BCE, EPD, POM

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."

BCE

Dividend Yield: 4.80%

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

BCE Inc., a telecommunications and media company, provides wireless, wireline, Internet, and television (TV) services to residential, business, and wholesale customers in Canada. The company operates through Bell Wireless, Bell Wireline, and Bell Media segments. The company has a P/E ratio of 19.95.

The average volume for BCE has been 1,080,600 shares per day over the past 30 days. BCE has a market cap of $37.3 billion and is part of the telecommunications industry. Shares are down 3.5% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates BCE 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 its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • BCE's revenue growth has slightly outpaced the industry average of 3.9%. Since the same quarter one year prior, revenues slightly increased by 2.8%. 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.
  • 48.55% is the gross profit margin for BCE INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 10.87% trails the industry average.
  • Net operating cash flow has slightly increased to $1,045.00 million or 6.41% when compared to the same quarter last year. Despite an increase in cash flow, BCE INC's average is still marginally south of the industry average growth rate of 8.64%.
  • 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 Diversified Telecommunication Services industry and the overall market on the basis of return on equity, BCE INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • BCE INC's earnings per share declined by 20.3% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, BCE INC increased its bottom line by earning $2.97 versus $2.54 in the prior year.

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Enterprise Products Partners

Dividend Yield: 4.50%

Enterprise Products Partners (NYSE: EPD) shares currently have a dividend yield of 4.50%.

Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products in the United States and internationally. The company has a P/E ratio of 24.54.

The average volume for Enterprise Products Partners has been 3,059,300 shares per day over the past 30 days. Enterprise Products Partners has a market cap of $64.7 billion and is part of the energy industry. Shares are down 7.6% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Enterprise Products Partners as a buy. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. We feel its 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:
  • EPD, with its decline in revenue, slightly underperformed the industry average of 37.8%. Since the same quarter one year prior, revenues fell by 42.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 20.4% when compared to the same quarter one year ago, dropping from $798.80 million to $636.10 million.
  • ENTERPRISE PRODS PRTNRS -LP's earnings per share declined by 24.7% 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, ENTERPRISE PRODS PRTNRS -LP increased its bottom line by earning $1.48 versus $1.41 in the prior year. For the next year, the market is expecting a contraction of 10.8% in earnings ($1.32 versus $1.48).
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, EPD has underperformed the S&P 500 Index, declining 11.38% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.

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Pepco Holdings

Dividend Yield: 4.20%

Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 4.20%.

Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. The company has a P/E ratio of 29.30.

The average volume for Pepco Holdings has been 1,355,300 shares per day over the past 30 days. Pepco Holdings has a market cap of $6.5 billion and is part of the utilities industry. Shares are down 5.3% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Pepco Holdings as a buy. Among the primary strengths of the company is its revenue growth. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • POM's revenue growth has slightly outpaced the industry average of 2.8%. Since the same quarter one year prior, revenues slightly increased by 3.1%. 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.
  • PEPCO HOLDINGS INC's earnings per share declined by 30.0% 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, PEPCO HOLDINGS INC increased its bottom line by earning $0.96 versus $0.41 in the prior year. This year, the market expects an improvement in earnings ($1.30 versus $0.96).
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Electric Utilities industry average. The net income has significantly decreased by 29.3% when compared to the same quarter one year ago, falling from $75.00 million to $53.00 million.
  • In its most recent trading session, POM 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. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.
  • The debt-to-equity ratio of 1.36 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, POM has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.

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