3 Sell-Rated Dividend Stocks: DLNG, LGCY, JCS

These 3 dividend stocks are rated a Sell by TheStreet
By TheStreet Wire ,

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 "Sell."

Dynagas LNG Partners

Dividend Yield: 12.50%

Dynagas LNG Partners

(NYSE:

DLNG

) shares currently have a dividend yield of 12.50%.

Dynagas LNG Partners LP, through its subsidiaries, operates in the seaborne transportation industry worldwide. The company owns and operates liquefied natural gas (LNG) vessels. The company has a P/E ratio of 8.26.

The average volume for Dynagas LNG Partners has been 70,100 shares per day over the past 30 days. Dynagas LNG Partners has a market cap of $276.2 million and is part of the transportation industry. Shares are down 20.1% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

Dynagas LNG Partners

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • Currently the debt-to-equity ratio of 1.90 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.44, which clearly demonstrates the inability to cover short-term cash needs.
  • Net operating cash flow has decreased to $14.25 million or 23.50% when compared to the same quarter last year. Despite a decrease in cash flow of 23.50%, DYNAGAS LNG PARTNERS LP is in line with the industry average cash flow growth rate of -27.14%.
  • DLNG's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 33.89%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The gross profit margin for DYNAGAS LNG PARTNERS LP is currently very high, coming in at 81.42%. Regardless of DLNG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DLNG's net profit margin of 40.23% significantly outperformed against the industry.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, DYNAGAS LNG PARTNERS LP's return on equity exceeds that of both the industry average and the S&P 500.

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Legacy Reserves

Dividend Yield: 17.30%

Legacy Reserves

(NASDAQ:

LGCY

) shares currently have a dividend yield of 17.30%.

Legacy Reserves LP owns and operates oil and natural gas properties in the United States.

The average volume for Legacy Reserves has been 408,000 shares per day over the past 30 days. Legacy Reserves has a market cap of $241.2 million and is part of the energy industry. Shares are down 71% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

Legacy Reserves

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 241.2% when compared to the same quarter one year ago, falling from $63.82 million to -$90.08 million.
  • The debt-to-equity ratio is very high at 8.16 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LGCY maintains a poor quick ratio of 0.83, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LEGACY RESERVES LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 81.21%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 235.29% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • LEGACY RESERVES LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LEGACY RESERVES LP reported poor results of -$4.24 versus -$0.62 in the prior year. This year, the market expects an improvement in earnings (-$4.13 versus -$4.24).

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Communications Systems

Dividend Yield: 7.90%

Communications Systems

(NASDAQ:

JCS

) shares currently have a dividend yield of 7.90%.

Communications Systems, Inc., together with its subsidiaries, manufactures and sells modular connecting and wiring devices, digital subscriber line filters, structured wiring systems, and media and rate conversion products primarily in North America, Europe, the Middle East, and Africa.

The average volume for Communications Systems has been 6,100 shares per day over the past 30 days. Communications Systems has a market cap of $71.3 million and is part of the telecommunications industry. Shares are down 24.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

Communications Systems

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself, deteriorating net income and feeble growth in its earnings per share.

Highlights from the ratings report include:

  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Communications Equipment industry and the overall market, COMMUNICATIONS SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for COMMUNICATIONS SYSTEMS INC is currently lower than what is desirable, coming in at 32.32%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.98% significantly trails the industry average.
  • Looking at the price performance of JCS's shares over the past 12 months, there is not much good news to report: the stock is down 28.85%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • The change in net income from the same quarter one year ago has exceeded that of the Communications Equipment industry average, but is less than that of the S&P 500. The net income has decreased by 24.3% when compared to the same quarter one year ago, dropping from $1.70 million to $1.28 million.
  • COMMUNICATIONS SYSTEMS INC's earnings per share declined by 25.0% 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, COMMUNICATIONS SYSTEMS INC turned its bottom line around by earning $0.23 versus -$0.11 in the prior year. For the next year, the market is expecting a contraction of 339.1% in earnings (-$0.55 versus $0.23).

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