What To Buy: Top 3 Buy-Rated Dividend Stocks: ETP, GEO, O

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."

Energy Transfer Partners

Dividend Yield: 7.20%

Energy Transfer Partners (NYSE: ETP) shares currently have a dividend yield of 7.20%.

Energy Transfer Partners, L.P. engages in the natural gas midstream, and intrastate transportation and storage businesses in the United States. The company has a P/E ratio of 87.00.

The average volume for Energy Transfer Partners has been 2,206,600 shares per day over the past 30 days. Energy Transfer Partners has a market cap of $28.2 billion and is part of the energy industry. Shares are down 13.5% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Energy Transfer Partners as a buy. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. 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:
  • ENERGY TRANSFER PARTNERS -LP 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. 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, ENERGY TRANSFER PARTNERS -LP turned its bottom line around by earning $1.65 versus -$0.24 in the prior year. This year, the market expects an improvement in earnings ($1.98 versus $1.65).
  • Despite the weak revenue results, ETP has outperformed against the industry average of 38.6%. Since the same quarter one year prior, revenues fell by 22.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENERGY TRANSFER PARTNERS -LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • The gross profit margin for ENERGY TRANSFER PARTNERS -LP is currently extremely low, coming in at 10.55%. Regardless of ETP'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 2.94% trails the industry average.
  • Net operating cash flow has decreased to $506.00 million or 25.80% when compared to the same quarter last year. Despite a decrease in cash flow ENERGY TRANSFER PARTNERS -LP is still fairing well by exceeding its industry average cash flow growth rate of -53.17%.

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GEO Group

Dividend Yield: 6.50%

GEO Group (NYSE: GEO) shares currently have a dividend yield of 6.50%.

The GEO Group, Inc. provides government-outsourced services specializing in the management of correctional, detention, and re-entry facilities, and the provision of community based services and youth services in the United States, Australia, South Africa, the United Kingdom, and Canada. The company has a P/E ratio of 19.26.

The average volume for GEO Group has been 541,200 shares per day over the past 30 days. GEO Group has a market cap of $2.8 billion and is part of the real estate industry. Shares are down 6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates GEO Group as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, increase in net income, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • GEO's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 8.7%. 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 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 2.8% when compared to the same quarter one year prior, going from $27.99 million to $28.78 million.
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, GEO GROUP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • 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.

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Realty Income

Dividend Yield: 4.90%

Realty Income (NYSE: O) shares currently have a dividend yield of 4.90%.

Realty Income Corporation is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. Realty Income Corporation was founded in 1969 and is based in Escondido, California. The company has a P/E ratio of 43.03.

The average volume for Realty Income has been 2,362,700 shares per day over the past 30 days. Realty Income has a market cap of $10.7 billion and is part of the real estate industry. Shares are down 4.5% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Realty Income 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, compelling growth in net income and increase in stock price during the past year. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the ratings report include:
  • O's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 11.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 48.57% is the gross profit margin for REALTY INCOME CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.24% is above that of the industry average.
  • Net operating cash flow has slightly increased to $117.85 million or 3.20% when compared to the same quarter last year. In addition, REALTY INCOME CORP has also modestly surpassed the industry average cash flow growth rate of 0.73%.
  • 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 16.6% when compared to the same quarter one year prior, going from $57.66 million to $67.26 million.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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