What To Buy: Top 3 Buy-Rated Dividend Stocks: PAA, NPBC, ORI

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."

Plains All American Pipeline

Dividend Yield: 5.70%

Plains All American Pipeline (NYSE: PAA) shares currently have a dividend yield of 5.70%.

Plains All American Pipeline, L.P., through with its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil, natural gas liquids (NGL), natural gas, and refined products in the United States and Canada. The company has a P/E ratio of 23.90.

The average volume for Plains All American Pipeline has been 1,454,600 shares per day over the past 30 days. Plains All American Pipeline has a market cap of $19.0 billion and is part of the energy industry. Shares are down 8.4% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Plains All American Pipeline 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 somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • PAA, with its decline in revenue, underperformed when compared the industry average of 38.6%. Since the same quarter one year prior, revenues fell by 49.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for PLAINS ALL AMER PIPELNE -LP is currently extremely low, coming in at 9.32%. Regardless of PAA'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 4.76% trails the industry average.
  • Net operating cash flow has decreased to $732.00 million or 10.94% when compared to the same quarter last year. Despite a decrease in cash flow PLAINS ALL AMER PIPELNE -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 26.3% when compared to the same quarter one year ago, falling from $384.00 million to $283.00 million.

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National Penn

Dividend Yield: 4.10%

National Penn (NASDAQ: NPBC) shares currently have a dividend yield of 4.10%.

National Penn Bancshares, Inc. operates as the bank holding company for National Penn Bank that provides commercial banking products, primarily deposits and loans to residents and businesses primarily in eastern and central Pennsylvania. The company has a P/E ratio of 14.73.

The average volume for National Penn has been 960,300 shares per day over the past 30 days. National Penn has a market cap of $1.5 billion and is part of the banking industry. Shares are up 2.1% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates National Penn as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and expanding profit margins. 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:
  • NPBC's revenue growth has slightly outpaced the industry average of 0.0%. Since the same quarter one year prior, revenues slightly increased by 9.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • NATIONAL PENN BANCSHARES INC has improved earnings per share by 18.8% 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 two years. We feel that this trend should continue. During the past fiscal year, NATIONAL PENN BANCSHARES INC increased its bottom line by earning $0.70 versus $0.37 in the prior year. This year, the market expects an improvement in earnings ($0.77 versus $0.70).
  • 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 Commercial Banks industry average. The net income increased by 17.7% when compared to the same quarter one year prior, going from $22.71 million to $26.73 million.
  • Net operating cash flow has significantly increased by 56.63% to $16.63 million when compared to the same quarter last year. In addition, NATIONAL PENN BANCSHARES INC has also vastly surpassed the industry average cash flow growth rate of -27.80%.
  • The gross profit margin for NATIONAL PENN BANCSHARES INC is currently very high, coming in at 90.59%. 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 26.72% trails the industry average.

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Old Republic International Corporation

Dividend Yield: 4.80%

Old Republic International Corporation (NYSE: ORI) shares currently have a dividend yield of 4.80%.

Old Republic International Corporation, through its subsidiaries, engages in the insurance underwriting and related services business primarily in the United States and Canada. The company has a P/E ratio of 13.69.

The average volume for Old Republic International Corporation has been 1,184,500 shares per day over the past 30 days. Old Republic International Corporation has a market cap of $4.0 billion and is part of the insurance industry. Shares are up 5.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Old Republic International Corporation as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. 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:
  • Although ORI's debt-to-equity ratio of 0.24 is very low, it is currently higher than that of the industry average.
  • Net operating cash flow has increased to $190.80 million or 40.91% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 21.13%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.5%. Since the same quarter one year prior, revenues slightly dropped by 7.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The share price of OLD REPUBLIC INTL CORP has not done very well: it is down 10.34% 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • OLD REPUBLIC INTL CORP's earnings per share declined by 46.3% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, OLD REPUBLIC INTL CORP reported lower earnings of $1.44 versus $1.57 in the prior year. For the next year, the market is expecting a contraction of 20.1% in earnings ($1.15 versus $1.44).

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