3 Buy-Rated Dividend Stocks Taking The Lead: HCN, SXL, 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."

Health Care REIT

Dividend Yield: 4.80%

Health Care REIT (NYSE: HCN) shares currently have a dividend yield of 4.80%.

Health Care REIT, Inc. is an independent equity real estate investment trust. The firm engages in acquiring, planning, developing, managing, repositioning and monetizing of real estate assets. It primarily invests in the real estate markets of the United States. The company has a P/E ratio of 37.57.

The average volume for Health Care REIT has been 2,126,900 shares per day over the past 30 days. Health Care REIT has a market cap of $24.0 billion and is part of the real estate industry. Shares are down 10.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Health Care REIT as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and reasonable valuation levels. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • HCN's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 10.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • HEALTH CARE REIT 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 two years. We feel that this trend should continue. During the past fiscal year, HEALTH CARE REIT INC increased its bottom line by earning $1.40 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($1.97 versus $1.40).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 212.1% when compared to the same quarter one year prior, rising from $66.38 million to $207.15 million.

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Sunoco Logistics Partners

Dividend Yield: 4.30%

Sunoco Logistics Partners (NYSE: SXL) shares currently have a dividend yield of 4.30%.

Sunoco Logistics Partners L.P. transports, terminals, and stores crude oil, refined products, and natural gas liquids (NGLs). It operates through four segments: Crude Oil Pipelines, Crude Oil Acquisition and Marketing, Terminal Facilities, and Products Pipelines. The company has a P/E ratio of 481.75.

The average volume for Sunoco Logistics Partners has been 727,800 shares per day over the past 30 days. Sunoco Logistics Partners has a market cap of $9.5 billion and is part of the energy industry. Shares are down 6.9% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Sunoco Logistics Partners as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations 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:
  • Net operating cash flow has increased to -$76.00 million or 39.20% when compared to the same quarter last year. In addition, SUNOCO LOGISTICS PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -53.19%.
  • The debt-to-equity ratio is somewhat low, currently at 0.62, 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 0.85 is somewhat weak and could be cause for future problems.
  • SUNOCO LOGISTICS 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. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, SUNOCO LOGISTICS PARTNERS LP reported lower earnings of $0.56 versus $1.63 in the prior year. This year, the market expects an improvement in earnings ($1.34 versus $0.56).
  • SXL, with its decline in revenue, slightly underperformed the industry average of 38.5%. Since the same quarter one year prior, revenues fell by 42.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for SUNOCO LOGISTICS PARTNERS LP is currently extremely low, coming in at 8.32%. Regardless of SXL'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 1.39% trails the industry average.

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Realty Income

Dividend Yield: 5.00%

Realty Income (NYSE: O) shares currently have a dividend yield of 5.00%.

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 42.64.

The average volume for Realty Income has been 2,517,500 shares per day over the past 30 days. Realty Income has a market cap of $10.6 billion and is part of the real estate industry. Shares are down 5.7% year-to-date as of the close of trading on Tuesday.

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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 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:
  • 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 0.76%.
  • 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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