What To Sell: 3 Sell-Rated Dividend Stocks EARN, SSI, HMLP

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."

Ellington Residential Mortgage REIT

Dividend Yield: 11.50%

Ellington Residential Mortgage REIT

(NYSE:

EARN

) shares currently have a dividend yield of 11.50%.

Ellington Residential Mortgage REIT, a real estate investment trust, specializes in acquiring, investing in, and managing residential mortgage-and real estate-related assets.

The average volume for Ellington Residential Mortgage REIT has been 29,600 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $127.0 million and is part of the real estate industry. Shares are up 12.9% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Ellington Residential Mortgage REIT

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 106.5% when compared to the same quarter one year ago, falling from $3.68 million to -$0.24 million.
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, ELLINGTON RESIDENTIAL MTG's return on equity significantly trails that of both the industry average and the S&P 500.
  • In its most recent trading session, EARN has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • ELLINGTON RESIDENTIAL MTG 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ELLINGTON RESIDENTIAL MTG reported lower earnings of $0.00 versus $1.77 in the prior year. This year, the market expects an increase in earnings to $2.09 from $0.00.
  • EARN, with its decline in revenue, underperformed when compared the industry average of 12.1%. Since the same quarter one year prior, revenues slightly dropped by 6.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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Stage Stores

Dividend Yield: 10.70%

Stage Stores

(NYSE:

SSI

) shares currently have a dividend yield of 10.70%.

Stage Stores, Inc. operates as a specialty department store retailer in small and mid-sized towns and communities in the United States. Its merchandise portfolio comprises moderately priced brand name and private label apparel, accessories, cosmetics, footwear, and home goods.

The average volume for Stage Stores has been 544,100 shares per day over the past 30 days. Stage Stores has a market cap of $152.4 million and is part of the retail industry. Shares are down 35.9% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Stage Stores

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, 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 Specialty Retail industry. The net income has significantly decreased by 79.0% when compared to the same quarter one year ago, falling from -$8.64 million to -$15.46 million.
  • 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 Specialty Retail industry and the overall market, STAGE STORES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for STAGE STORES INC is currently lower than what is desirable, coming in at 25.48%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -4.64% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 68.38%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 111.11% 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.
  • STAGE STORES INC 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, STAGE STORES INC reported lower earnings of $0.17 versus $1.17 in the prior year. This year, the market expects an improvement in earnings ($0.20 versus $0.17).

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Hoegh LNG Partners

Dividend Yield: 8.80%

Hoegh LNG Partners

(NYSE:

HMLP

) shares currently have a dividend yield of 8.80%.

Hoegh LNG Partners LP focuses on owning, operating, and acquiring floating storage and regasification units (FSRUs), liquefied natural gas (LNG) carriers, and other LNG infrastructure assets under long-term charters. As of March 31, 2016, it had a fleet of four FSRUs. The company has a P/E ratio of 13.27.

The average volume for Hoegh LNG Partners has been 20,500 shares per day over the past 30 days. Hoegh LNG Partners has a market cap of $495.7 million and is part of the transportation industry. Shares are up 2.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Hoegh LNG Partners

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, weak operating cash flow 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 140.3% when compared to the same quarter one year ago, falling from $2.58 million to -$1.04 million.
  • Currently the debt-to-equity ratio of 1.73 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, HMLP has a quick ratio of 0.67, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has decreased to $11.94 million or 15.73% when compared to the same quarter last year. Despite a decrease in cash flow HOEGH LNG PARTNERS LP is still fairing well by exceeding its industry average cash flow growth rate of -49.98%.
  • HOEGH LNG PARTNERS 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. 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, HOEGH LNG PARTNERS LP increased its bottom line by earning $1.56 versus $0.12 in the prior year. For the next year, the market is expecting a contraction of 7.0% in earnings ($1.45 versus $1.56).
  • After a year of stock price fluctuations, the net result is that HMLP's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. 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.

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