Buy-Rated Dividend Stocks: Top 3 Companies: HME, SFUN, WPC

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."

Home Properties

Dividend Yield: 4.10%

Home Properties (NYSE: HME) shares currently have a dividend yield of 4.10%.

Home Properties, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in the ownership, management, acquisition, rehabilitation and development of residential apartment communities. The company has a P/E ratio of 33.13.

The average volume for Home Properties has been 488,700 shares per day over the past 30 days. Home Properties has a market cap of $4.3 billion and is part of the real estate industry. Shares are up 14.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Home Properties as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, revenue growth, reasonable valuation levels and impressive record of earnings per share growth. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 25.3% when compared to the same quarter one year prior, rising from $45.79 million to $57.36 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 5.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • HOME PROPERTIES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. Despite the past stability of earnings, the consensus estimate anticipates a weakening in earnings. During the past fiscal year, HOME PROPERTIES INC's EPS of $1.59 remained unchanged from the prior years' EPS of $1.59. For the next year, the market is expecting a contraction of 15.1% in earnings ($1.35 versus $1.59).

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SouFun Holdings

Dividend Yield: 5.00%

SouFun Holdings (NYSE: SFUN) shares currently have a dividend yield of 5.00%.

SouFun Holdings Limited operates a real estate Internet portal, and home furnishing and improvement Websites in the People's Republic of China. The company has a P/E ratio of 2.51.

The average volume for SouFun Holdings has been 9,370,400 shares per day over the past 30 days. SouFun Holdings has a market cap of $3.3 billion and is part of the internet industry. Shares are up 9.1% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates SouFun Holdings as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 5.9%. Since the same quarter one year prior, revenues slightly increased by 2.7%. 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 SOUFUN HLDGS LTD is currently very high, coming in at 82.22%. Regardless of SFUN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SFUN's net profit margin of 37.00% significantly outperformed against the industry.
  • SFUN's debt-to-equity ratio of 0.92 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that SFUN's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.20 is high and demonstrates strong liquidity.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, SOUFUN HLDGS LTD's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The share price of SOUFUN HLDGS LTD has not done very well: it is down 24.43% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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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W P Carey

Dividend Yield: 6.00%

W P Carey (NYSE: WPC) shares currently have a dividend yield of 6.00%.

W. P. Carey Inc. is an independent equity real estate investment trust. The firm also provides long-term sale-leaseback and build-to-suit financing for companies. It invests in the real estate markets across the globe. The company has a P/E ratio of 30.83.

The average volume for W P Carey has been 396,000 shares per day over the past 30 days. W P Carey has a market cap of $6.6 billion and is part of the real estate industry. Shares are down 9.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates W P Carey as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, compelling growth in net income, good cash flow from operations and impressive record of earnings per share growth. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • WPC's very impressive revenue growth greatly exceeded the industry average of 8.5%. Since the same quarter one year prior, revenues leaped by 78.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 40.0% when compared to the same quarter one year prior, rising from $23.02 million to $32.23 million.
  • Net operating cash flow has significantly increased by 98.01% to $121.94 million when compared to the same quarter last year. In addition, W P CAREY INC has also vastly surpassed the industry average cash flow growth rate of -51.19%.
  • W P CAREY INC reported significant earnings per share improvement 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, W P CAREY INC increased its bottom line by earning $2.14 versus $1.21 in the prior year. For the next year, the market is expecting a contraction of 22.4% in earnings ($1.66 versus $2.14).

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