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."

Bank of Nova Scotia

Dividend Yield: 4.30%

Bank of Nova Scotia

(NYSE:

BNS

) shares currently have a dividend yield of 4.30%.

The Bank of Nova Scotia provides various personal, commercial, corporate, and investment banking services in Canada and internationally. The company has a P/E ratio of 11.41.

The average volume for Bank of Nova Scotia has been 903,800 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $60.8 billion and is part of the banking industry. Shares are up 27.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Bank of Nova Scotia

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Commercial Banks industry average. The net income has decreased by 13.3% when compared to the same quarter one year ago, dropping from $1,757.00 million to $1,523.00 million.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, BNS has underperformed the S&P 500 Index, declining 6.27% from its price level of one year ago. 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.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market, BANK OF NOVA SCOTIA's return on equity exceeds that of both the industry average and the S&P 500.
  • BANK OF NOVA SCOTIA's earnings per share declined by 13.4% in the most recent quarter compared to the same quarter a year ago. Stable Earnings per share over the past year indicate the company has sound management over its earnings and share float. During the past fiscal year, BANK OF NOVA SCOTIA increased its bottom line by earning $5.67 versus $5.66 in the prior year.
  • The gross profit margin for BANK OF NOVA SCOTIA is rather high; currently it is at 69.74%. Regardless of BNS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 17.97% trails the industry average.

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Alon USA Energy

Dividend Yield: 7.80%

Alon USA Energy

(NYSE:

ALJ

) shares currently have a dividend yield of 7.80%.

Alon USA Energy, Inc. refines and markets petroleum products, primarily in the South Central, Southwestern, and Western regions of the United States. It operates in three segments: Refining and Marketing, Asphalt, and Retail.

The average volume for Alon USA Energy has been 1,079,300 shares per day over the past 30 days. Alon USA Energy has a market cap of $548.2 million and is part of the energy industry. Shares are down 47.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Alon USA Energy

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, poor profit margins, weak operating cash flow, disappointing return on equity and generally disappointing historical performance in the stock itself.

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 231.9% when compared to the same quarter one year ago, falling from $26.94 million to -$35.54 million.
  • The gross profit margin for ALON USA ENERGY INC is currently extremely low, coming in at 5.56%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -4.27% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$29.35 million or 52.70% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ALON USA ENERGY INC has marginally lower results.
  • 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. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ALON USA ENERGY INC's return on equity has significantly outperformed in comparison with the industry average, but has underperformed when compared to that of 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 55.16%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 234.21% 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.

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ARMOUR Residential REIT

Dividend Yield: 13.40%

ARMOUR Residential REIT

(NYSE:

ARR

) shares currently have a dividend yield of 13.40%.

ARMOUR Residential REIT, Inc. invests in residential mortgage backed securities in the United States. The company is managed by ARMOUR Capital Management LP.

The average volume for ARMOUR Residential REIT has been 525,000 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $725.0 million and is part of the real estate industry. Shares are down 9.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

ARMOUR Residential REIT

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

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 122.7% when compared to the same quarter one year ago, falling from -$125.47 million to -$279.48 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$208.71 million or 385.51% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of ARMOUR RESIDENTIAL REIT INC has not done very well: it is down 18.30% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
  • The revenue fell significantly faster than the industry average of 11.9%. Since the same quarter one year prior, revenues fell by 20.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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