Buy-Rated Dividend Stocks In The Top 3: NTI, ENI, PACW

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."

Northern Tier Energy

Dividend Yield: 17.60%

Northern Tier Energy (NYSE: NTI) shares currently have a dividend yield of 17.60%.

Northern Tier Energy LP, an independent downstream energy company, engages in refining, retail, and pipeline operations in the United States. It operates through two segments, Refining and Retail. The company has a P/E ratio of 8.08.

The average volume for Northern Tier Energy has been 465,500 shares per day over the past 30 days. Northern Tier Energy has a market cap of $2.3 billion and is part of the energy industry. Shares are up 11.3% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Northern Tier Energy as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, notable return on equity, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • NORTHERN TIER ENERGY LP 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. We feel that this trend should continue. During the past fiscal year, NORTHERN TIER ENERGY LP increased its bottom line by earning $2.60 versus $2.52 in the prior year. This year, the market expects an improvement in earnings ($3.99 versus $2.60).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 55.5% when compared to the same quarter one year prior, rising from $71.50 million to $111.20 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NORTHERN TIER ENERGY LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is somewhat low, currently at 0.77, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.95 is somewhat weak and could be cause for future problems.

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What To Hold: 3 Hold-Rated Dividend Stocks GPT, NTI, PCH