NEW YORK (TheStreet ) -- Some savvy investors only invest in stocks that pay dividends. They love them because they rely on the income they receive from those stocks.
Dividends are paid out of after-tax profits, and the investors that receive the dividends must pay taxes on them.
Stocks that pay dividends are in demand right now because interest rates are low. When interest rates are low, owning a dividend stock with a high yield can provide more income than other financial instruments that generate income based on interest rates, like treasury bills. Dividend stocks also tend to be established, mature companies, with steady revenues under various economic scenarios, making them good investments in general.
Take a page out of the playbook of legendary investor Warren Buffett: he loves to invest in companies that pay dividends. such as Coca-Cola (KO ) and Wells Fargo (WFC ) (though he does not like paying them, for Berkshire Hathaway's (BRK.A ) tax benefit; Buffett prefers to buy back shares instead of paying dividends).
So, what are the best stocks, with high dividends, investors should be buying? Here are the top four, according to TheStreet Ratings. TheStreet 's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which companies made the list. And when you're done, be sure to read about which semiconductor stocks with high dividends to buy now. Year-to-date returns are based on July 15, 2015, closing prices. The highest-rated stock appears last.
4. LTC Properties, Inc. (LTC )
Market Cap: $1.6 billion
Year-to-date return. 88%
LTC Properties, Inc. operates as a health care real estate investment trust (REIT) in the United States.
"We rate LTC PROPERTIES INC (LTC) a BUY. This is
based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, expanding profit margins, increase in net income and growth in earnings per share. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. 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.
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.6%. Since the same quarter one year prior, revenues slightly increased by 6.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for LTC PROPERTIES INC is rather high; currently it is at 67.35%. Regardless of LTC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LTC's net profit margin of 55.75% significantly outperformed against the industry.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 3.2% when compared to the same quarter one year prior, going from $17.00 million to $17.55 million.
- LTC PROPERTIES INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, LTC PROPERTIES INC increased its bottom line by earning $1.99 versus $1.56 in the prior year. For the next year, the market is expecting a contraction of 1.0% in earnings ($1.97 versus $1.99).
- You can view the full analysis from the report here: LTC Ratings Report