Best Of The Buy-Rated Dividend Stocks: Top 3 Companies: DDC, TCPC, SJI

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."

Dominion Diamond

Dividend Yield: 9.80%

Dominion Diamond (NYSE: DDC) shares currently have a dividend yield of 9.80%.

Dominion Diamond Corporation engages in the mining and marketing of rough diamonds. It operates through Diavik Diamond Mine and Ekati Diamond Mine segments. The company has a P/E ratio of 23.64.

The average volume for Dominion Diamond has been 361,500 shares per day over the past 30 days. Dominion Diamond has a market cap of $1.4 billion and is part of the metals & mining industry. Shares are down 9.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Dominion Diamond as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, reasonable valuation levels and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 17.3%. Since the same quarter one year prior, revenues slightly increased by 7.0%. 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.
  • DDC's debt-to-equity ratio is very low at 0.03 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, DDC has a quick ratio of 1.83, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Compared to its closing price of one year ago, DDC's share price has jumped by 34.71%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DDC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, DOMINION DIAMOND CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.

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TCP Capital

Dividend Yield: 9.40%

TCP Capital (NASDAQ: TCPC) shares currently have a dividend yield of 9.40%.

TCP Capital Corp. is a business development company specializing in direct equity and debt investments in middle-market, senior secured loans, junior loans, originated loans, mezzanine, senior debt instruments, bonds, and secondary-market investments. It seeks to invest in the United States. The company has a P/E ratio of 9.92.

The average volume for TCP Capital has been 165,200 shares per day over the past 30 days. TCP Capital has a market cap of $753.0 million and is part of the financial services industry. Shares are down 7.9% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates TCP Capital as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, good cash flow from operations and increase in net income. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 5.7%. Since the same quarter one year prior, revenues rose by 44.8%. 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 TCP CAPITAL CORP is currently very high, coming in at 81.43%. Regardless of TCPC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TCPC's net profit margin of 57.45% significantly outperformed against the industry.
  • Net operating cash flow has increased to -$37.51 million or 14.12% when compared to the same quarter last year. Despite an increase in cash flow of 14.12%, TCP CAPITAL CORP is still growing at a significantly lower rate than the industry average of 191.13%.
  • TCP CAPITAL CORP's earnings per share declined by 24.0% in the most recent quarter compared to 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, TCP CAPITAL CORP reported lower earnings of $0.96 versus $1.94 in the prior year. This year, the market expects an improvement in earnings ($1.56 versus $0.96).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Capital Markets industry average, but is greater than that of the S&P 500. The net income increased by 2.2% when compared to the same quarter one year prior, going from $18.45 million to $18.86 million.

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South Jersey Industries

Dividend Yield: 8.10%

South Jersey Industries (NYSE: SJI) shares currently have a dividend yield of 8.10%.

South Jersey Industries, Inc., through its subsidiaries, provides energy related products and services. It engages in the purchase, transmission, and sale of natural gas. The company has a P/E ratio of 16.42.

The average volume for South Jersey Industries has been 269,100 shares per day over the past 30 days. South Jersey Industries has a market cap of $1.7 billion and is part of the utilities industry. Shares are down 16% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates South Jersey Industries 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 and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 20.2%. Since the same quarter one year prior, revenues slightly increased by 9.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SOUTH JERSEY INDUSTRIES INC has improved earnings per share by 6.8% 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 year. We feel that this trend should continue. During the past fiscal year, SOUTH JERSEY INDUSTRIES INC increased its bottom line by earning $1.47 versus $1.29 in the prior year. This year, the market expects an improvement in earnings ($1.67 versus $1.47).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Gas Utilities industry. The net income increased by 11.9% when compared to the same quarter one year prior, going from $47.90 million to $53.58 million.
  • 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. Compared to other companies in the Gas Utilities industry and the overall market on the basis of return on equity, SOUTH JERSEY INDUSTRIES INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The gross profit margin for SOUTH JERSEY INDUSTRIES INC is rather low; currently it is at 24.33%. Regardless of SJI's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SJI's net profit margin of 13.99% compares favorably to the industry average.

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