Buy-Rated Dividend Stocks: Top 3 Companies: ARCC, AVA, GEL

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."

Ares Capital Corporation

Dividend Yield: 9.10%

Ares Capital Corporation (NASDAQ: ARCC) shares currently have a dividend yield of 9.10%.

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 8.73.

The average volume for Ares Capital Corporation has been 1,900,100 shares per day over the past 30 days. Ares Capital Corporation has a market cap of $5.3 billion and is part of the financial services industry. Shares are up 7.5% year-to-date as of the close of trading on Friday.

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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 its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 5.8%. 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 190.26%.
  • 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. When compared to other companies in the Capital Markets industry and the overall market, ARES CAPITAL CORP's return on equity is below that of both the industry average and 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 20.2% in earnings ($1.54 versus $1.93).

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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 17.07.

The average volume for Avista has been 355,100 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 9.5% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Avista as a buy. Among the primary strengths of the company is its attractive 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 somewhat disappointing return on equity.

Highlights from the ratings report include:
  • AVISTA CORP's earnings per share declined by 5.1% 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 ($1.97 versus $1.94).
  • Despite the weak revenue results, AVA has outperformed against the industry average of 12.3%. Since the same quarter one year prior, revenues slightly dropped by 0.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the Multi-Utilities industry average. The net income has decreased by 4.2% when compared to the same quarter one year ago, dropping from $48.50 million to $46.45 million.
  • The gross profit margin for AVISTA CORP is currently lower than what is desirable, coming in at 27.78%. Regardless of AVA's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 10.40% trails the industry average.

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Genesis Energy

Dividend Yield: 5.00%

Genesis Energy (NYSE: GEL) shares currently have a dividend yield of 5.00%.

Genesis Energy, L.P. operates in the midstream segment of the oil and gas industry in the Gulf Coast region of the United States. Its Onshore Pipeline Transportation segment transports crude oil and carbon dioxide (CO2). The company has a P/E ratio of 46.43.

The average volume for Genesis Energy has been 370,600 shares per day over the past 30 days. Genesis Energy has a market cap of $4.9 billion and is part of the energy industry. Shares are up 14.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Genesis Energy as a buy. The company's strongest point has been its expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • GENESIS ENERGY -LP's earnings per share declined by 38.2% 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, GENESIS ENERGY -LP increased its bottom line by earning $1.19 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($1.34 versus $1.19).
  • GEL, with its decline in revenue, slightly underperformed the industry average of 38.6%. Since the same quarter one year prior, revenues fell by 48.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for GENESIS ENERGY -LP is currently extremely low, coming in at 12.17%. Regardless of GEL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.83% trails the industry average.
  • Net operating cash flow has decreased to $62.47 million or 41.11% when compared to the same quarter last year. Despite a decrease in cash flow GENESIS ENERGY -LP is still fairing well by exceeding its industry average cash flow growth rate of -53.17%.
  • The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 32.1% when compared to the same quarter one year ago, falling from $29.78 million to $20.22 million.

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