3 Buy-Rated Dividend Stocks: NAT, SNP, ARCC

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."

Nordic American Tankers

Dividend Yield: 11.20%

Nordic American Tankers (NYSE: NAT) shares currently have a dividend yield of 11.20%.

Nordic American Tankers Limited, a tanker company, engages in acquiring and chartering double-hull tankers. As of December 31, 2014, it owned 24 Suezmax crude oil tankers, including two new buildings under construction. The company was founded in 1995 and is based in Hamilton, Bermuda.

The average volume for Nordic American Tankers has been 1,481,800 shares per day over the past 30 days. Nordic American Tankers has a market cap of $1.2 billion and is part of the transportation industry. Shares are up 34.3% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Nordic American Tankers 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, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and good cash flow from operations. 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:
  • NORDIC AMERICAN TANKERS LTD 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, NORDIC AMERICAN TANKERS LTD continued to lose money by earning -$0.15 versus -$1.67 in the prior year. This year, the market expects an improvement in earnings ($0.84 versus -$0.15).
  • 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 659.9% when compared to the same quarter one year prior, rising from $3.99 million to $30.32 million.
  • NAT's debt-to-equity ratio is very low at 0.28 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 6.95, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for NORDIC AMERICAN TANKERS LTD is currently very high, coming in at 76.80%. It has increased significantly from the same period last year. Along with this, the net profit margin of 43.58% significantly outperformed against the industry average.
  • Net operating cash flow has significantly increased by 70.72% to $40.66 million when compared to the same quarter last year. In addition, NORDIC AMERICAN TANKERS LTD has also vastly surpassed the industry average cash flow growth rate of -53.19%.

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China Petroleum & Chemical

Dividend Yield: 4.10%

China Petroleum & Chemical (NYSE: SNP) shares currently have a dividend yield of 4.10%.

China Petroleum & Chemical Corporation, an energy and chemical company, through its subsidiaries, engages in the oil and gas, and chemical operations and businesses in the People's Republic of China. The company has a P/E ratio of 17.44.

The average volume for China Petroleum & Chemical has been 203,200 shares per day over the past 30 days. China Petroleum & Chemical has a market cap of $101.3 billion and is part of the energy industry. Shares are up 2.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates China Petroleum & Chemical as a buy. The company's strengths can be seen in multiple areas, such as its reasonable 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 somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.45, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.32 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Despite the weak revenue results, SNP has outperformed against the industry average of 38.5%. Since the same quarter one year prior, revenues fell by 25.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has decreased to $1,077.92 million or 46.90% when compared to the same quarter last year. Despite a decrease in cash flow of 46.90%, CHINA PETROLEUM & CHEM CORP is in line with the industry average cash flow growth rate of -53.19%.
  • In its most recent trading session, SNP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.

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Ares Capital Corporation

Dividend Yield: 9.30%

Ares Capital Corporation (NASDAQ: ARCC) shares currently have a dividend yield of 9.30%.

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 8.54.

The average volume for Ares Capital Corporation has been 1,737,300 shares per day over the past 30 days. Ares Capital Corporation has a market cap of $5.2 billion and is part of the financial services industry. Shares are up 5% year-to-date as of the close of trading on Tuesday.

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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 5.7%. 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 189.33%.
  • 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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