Buy-Rated Dividend Stocks In The Top 3: HME, SFL, PACW

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."

Home Properties

Dividend Yield: 4.10%

Home Properties (NYSE: HME) shares currently have a dividend yield of 4.10%.

Home Properties, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in the ownership, management, acquisition, rehabilitation and development of residential apartment communities. The company has a P/E ratio of 32.56.

The average volume for Home Properties has been 636,200 shares per day over the past 30 days. Home Properties has a market cap of $4.3 billion and is part of the real estate industry. Shares are up 12.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Home Properties as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, revenue growth, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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.
  • 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 25.3% when compared to the same quarter one year prior, rising from $45.79 million to $57.36 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.4%. Since the same quarter one year prior, revenues slightly increased by 6.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Net operating cash flow has increased to $89.97 million or 14.63% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.89%.

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Ship Finance International

Dividend Yield: 10.10%

Ship Finance International (NYSE: SFL) shares currently have a dividend yield of 10.10%.

Ship Finance International Limited owns and operates vessels and offshore related assets in Bermuda, Cyprus, Malta, Liberia, Norway, Singapore, the United Kingdom, and the Marshall Islands. It is also involved in the charter, purchase, and sale of assets. The company has a P/E ratio of 17.15.

The average volume for Ship Finance International has been 587,500 shares per day over the past 30 days. Ship Finance International has a market cap of $1.6 billion and is part of the transportation industry. Shares are up 20.3% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Ship Finance International 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 lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 38.7%. Since the same quarter one year prior, revenues slightly increased by 9.0%. 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.
  • The gross profit margin for SHIP FINANCE INTL LTD is rather high; currently it is at 69.52%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 36.75% significantly outperformed against the industry average.
  • Net operating cash flow has significantly increased by 76.97% to $65.59 million when compared to the same quarter last year. In addition, SHIP FINANCE INTL LTD has also vastly surpassed the industry average cash flow growth rate of -53.29%.
  • SHIP FINANCE INTL LTD's earnings per share declined by 20.0% 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, SHIP FINANCE INTL LTD increased its bottom line by earning $1.25 versus $1.01 in the prior year. This year, the market expects an improvement in earnings ($1.58 versus $1.25).
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 18.7% when compared to the same quarter one year ago, dropping from $40.73 million to $33.11 million.

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PacWest Bancorp

Dividend Yield: 4.10%

PacWest Bancorp (NASDAQ: PACW) shares currently have a dividend yield of 4.10%.

PacWest Bancorp operates as the holding company for Pacific Western Bank that provides commercial banking products and services to individuals, professionals, and small to mid-sized businesses in the United States. It accepts demand, money market, and time deposits. The company has a P/E ratio of 23.22.

The average volume for PacWest Bancorp has been 755,800 shares per day over the past 30 days. PacWest Bancorp has a market cap of $5.0 billion and is part of the banking industry. Shares are up 6.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates PacWest Bancorp as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and increase in stock price during the past year. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • PACW's very impressive revenue growth greatly exceeded the industry average of 0.1%. Since the same quarter one year prior, revenues leaped by 157.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • PACWEST BANCORP has improved earnings per share by 24.6% 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, PACWEST BANCORP increased its bottom line by earning $1.97 versus $1.08 in the prior year. This year, the market expects an improvement in earnings ($2.80 versus $1.97).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Banks industry. The net income increased by 191.4% when compared to the same quarter one year prior, rising from $25.08 million to $73.08 million.
  • Net operating cash flow has significantly increased by 364.27% to $126.49 million when compared to the same quarter last year. In addition, PACWEST BANCORP has also vastly surpassed the industry average cash flow growth rate of -37.14%.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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