3 Buy-Rated Dividend Stocks Taking The Lead: ALE, AVA, PCL

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."

ALLETE

Dividend Yield: 4.10%

ALLETE (NYSE: ALE) shares currently have a dividend yield of 4.10%.

ALLETE, Inc. operates as an energy company. The company operates through Regulated Operations, and Investments and Other segments. It generates electricity from coal-fired, hydro, wind, and biomass co-fired facilities. The company has a P/E ratio of 16.73.

The average volume for ALLETE has been 326,700 shares per day over the past 30 days. ALLETE has a market cap of $2.4 billion and is part of the utilities industry. Shares are down 10.9% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates ALLETE as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and compelling growth 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:
  • ALE's revenue growth has slightly outpaced the industry average of 3.6%. Since the same quarter one year prior, revenues slightly increased by 7.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • ALLETE INC has improved earnings per share by 6.3% 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, ALLETE INC increased its bottom line by earning $2.90 versus $2.63 in the prior year. This year, the market expects an improvement in earnings ($3.09 versus $2.90).
  • The debt-to-equity ratio is somewhat low, currently at 0.78, 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 0.47 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Electric Utilities industry average, but is greater than that of the S&P 500. The net income increased by 19.1% when compared to the same quarter one year prior, going from $33.50 million to $39.90 million.

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Avista

Dividend Yield: 4.20%

Avista (NYSE: AVA) shares currently have a dividend yield of 4.20%.

Avista Corporation, an electric and natural gas utility company, generates, transmits, and distributes electricity; and distributes natural gas in the United States and Canada. It operates in two segments, Avista Utilities and Alaska Electric Light and Power Company. The company has a P/E ratio of 16.79.

The average volume for Avista has been 356,200 shares per day over the past 30 days. Avista has a market cap of $2.0 billion and is part of the utilities industry. Shares are down 10.7% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Avista as a buy. Among the primary strengths of the company is its attractive valuation levels, considering its current price compared to earnings, book value and other measures. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • AVISTA CORP's earnings per share declined by 5.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AVISTA CORP increased its bottom line by earning $1.94 versus $1.72 in the prior year. This year, the market expects an improvement in earnings ($1.97 versus $1.94).
  • Despite the weak revenue results, AVA has outperformed against the industry average of 12.3%. Since the same quarter one year prior, revenues slightly dropped by 0.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the Multi-Utilities industry average. The net income has decreased by 4.2% when compared to the same quarter one year ago, dropping from $48.50 million to $46.45 million.
  • The gross profit margin for AVISTA CORP is currently lower than what is desirable, coming in at 27.78%. Regardless of AVA'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 10.40% trails the industry average.

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Plum Creek Timber

Dividend Yield: 4.20%

Plum Creek Timber (NYSE: PCL) shares currently have a dividend yield of 4.20%.

Plum Creek Timber Company, Inc. is a publicly owned real estate investment trust (REIT). The trust owns and manages timberlands in the United States. Its products include lumber products, plywood, medium density fiberboard, and related by-products, such as wood chips. The company has a P/E ratio of 32.58.

The average volume for Plum Creek Timber has been 883,600 shares per day over the past 30 days. Plum Creek Timber has a market cap of $7.3 billion and is part of the materials & construction industry. Shares are down 2.7% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Plum Creek Timber as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 28.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 40.0% when compared to the same quarter one year prior, rising from $30.00 million to $42.00 million.
  • Net operating cash flow has significantly increased by 164.91% to $151.00 million when compared to the same quarter last year. In addition, PLUM CREEK TIMBER CO INC has also vastly surpassed the industry average cash flow growth rate of 0.89%.
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, PLUM CREEK TIMBER CO INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • PLUM CREEK TIMBER CO INC has improved earnings per share by 41.2% 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, PLUM CREEK TIMBER CO INC reported lower earnings of $1.21 versus $1.31 in the prior year. For the next year, the market is expecting a contraction of 6.6% in earnings ($1.13 versus $1.21).

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