Buy-Rated Dividend Stocks: Top 3 Companies: PNW, IRM, VGR

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."

Pinnacle West Capital

Dividend Yield: 4.10%

Pinnacle West Capital (NYSE: PNW) shares currently have a dividend yield of 4.10%.

Pinnacle West Capital Corporation, through its subsidiary, Arizona Public Service Company, provides retail and wholesale electric services primarily in the State of Arizona. It generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. The company has a P/E ratio of 16.15.

The average volume for Pinnacle West Capital has been 772,300 shares per day over the past 30 days. Pinnacle West Capital has a market cap of $6.4 billion and is part of the utilities industry. Shares are down 16.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Pinnacle West Capital 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, reasonable valuation levels, increase in stock price during the past year and increase in net income. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • The debt-to-equity ratio is somewhat low, currently at 0.84, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.18 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • PINNACLE WEST CAPITAL CORP reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, PINNACLE WEST CAPITAL CORP reported lower earnings of $3.58 versus $3.66 in the prior year. This year, the market expects an improvement in earnings ($3.85 versus $3.58).
  • PNW, with its decline in revenue, slightly underperformed the industry average of 2.6%. Since the same quarter one year prior, revenues slightly dropped by 2.2%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
  • 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. 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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Iron Mountain

Dividend Yield: 6.00%

Iron Mountain (NYSE: IRM) shares currently have a dividend yield of 6.00%.

Iron Mountain Incorporated, together with its subsidiaries, provides storage and information management services in North America, Europe, Latin America, and the Asia Pacific. The company has a P/E ratio of 18.85.

The average volume for Iron Mountain has been 1,719,700 shares per day over the past 30 days. Iron Mountain has a market cap of $6.7 billion and is part of the computer software & services industry. Shares are down 17.2% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Iron Mountain as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins and increase in stock price during the past year. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, IRON MOUNTAIN INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for IRON MOUNTAIN INC is rather high; currently it is at 57.07%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, IRM's net profit margin of 5.48% significantly trails the industry average.
  • IRM, with its decline in revenue, underperformed when compared the industry average of 8.5%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • In its most recent trading session, IRM 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. 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.
  • IRON MOUNTAIN INC's earnings per share declined by 13.6% 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, IRON MOUNTAIN INC increased its bottom line by earning $1.69 versus $0.52 in the prior year. For the next year, the market is expecting a contraction of 27.2% in earnings ($1.23 versus $1.69).

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Vector Group

Dividend Yield: 7.20%

Vector Group (NYSE: VGR) shares currently have a dividend yield of 7.20%.

Vector Group Ltd., through its subsidiaries, primarily manufactures and sells cigarettes in the United States. The company operates through Tobacco, E-Cigarettes, and Real Estate segments. The company has a P/E ratio of 44.74.

The average volume for Vector Group has been 592,600 shares per day over the past 30 days. Vector Group has a market cap of $2.6 billion and is part of the tobacco industry. Shares are up 5.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Vector Group as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and expanding profit margins. 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:
  • The revenue growth greatly exceeded the industry average of 23.1%. Since the same quarter one year prior, revenues slightly increased by 7.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • VECTOR GROUP 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, VECTOR GROUP LTD increased its bottom line by earning $0.35 versus $0.32 in the prior year. This year, the market expects an improvement in earnings ($0.74 versus $0.35).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Tobacco industry. The net income increased by 712.2% when compared to the same quarter one year prior, rising from $2.58 million to $20.96 million.
  • Net operating cash flow has significantly increased by 120.02% to $7.83 million when compared to the same quarter last year. In addition, VECTOR GROUP LTD has also vastly surpassed the industry average cash flow growth rate of -31.97%.
  • 47.24% is the gross profit margin for VECTOR GROUP LTD which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, VGR's net profit margin of 7.94% significantly trails the industry average.

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