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: 14.80%

Ellington Residential Mortgage REIT

(NYSE:

EARN

) shares currently have a dividend yield of 14.80%.

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 48,700 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $111.0 million and is part of the real estate industry. Shares are down 2.8% 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

. Among the areas we feel are negative, one of the most important has been an overall disappointing return on equity.

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 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.
  • EARN, with its decline in revenue, underperformed when compared the industry average of 7.9%. Since the same quarter one year prior, revenues fell by 21.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Compared to where it was trading one year ago, EARN is down 26.60% to its most recent closing price of 12.06. Looking ahead, our view is that this stock still does not have good upside potential and may even suffer further declines.
  • ELLINGTON RESIDENTIAL MTG reported significant earnings per share improvement 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, 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 $2.13 from $0.00.
  • The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 87.22%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, EARN's net profit margin of 10.50% significantly trails the industry average.

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CM Finance

Dividend Yield: 16.30%

CM Finance

(NASDAQ:

CMFN

) shares currently have a dividend yield of 16.30%.

CM Finance Inc. is a business development company. The company has a P/E ratio of 6.16.

The average volume for CM Finance has been 43,100 shares per day over the past 30 days. CM Finance has a market cap of $117.9 million and is part of the financial services industry. Shares are down 7.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

TheStreet Recommends

CM Finance

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 Capital Markets industry. The net income has significantly decreased by 290.5% when compared to the same quarter one year ago, falling from $8.08 million to -$15.40 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 Capital Markets industry and the overall market, CM FINANCE INC'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 42.20%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 291.52% 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.
  • CM FINANCE 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. 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, CM FINANCE INC increased its bottom line by earning $1.13 versus $0.81 in the prior year. This year, the market expects an improvement in earnings ($1.56 versus $1.13).
  • The gross profit margin for CM FINANCE INC is currently very high, coming in at 77.18%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -154.60% is in-line with the industry average.

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Deswell Industries

Dividend Yield: 8.40%

Deswell Industries

(NASDAQ:

DSWL

) shares currently have a dividend yield of 8.40%.

Deswell Industries, Inc. manufactures and sells injection-molded plastic parts and components; and assembles electronic products for original equipment manufacturers and contract manufacturers.

The average volume for Deswell Industries has been 39,100 shares per day over the past 30 days. Deswell Industries has a market cap of $26.7 million and is part of the consumer non-durables industry. Shares are up 17.5% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Deswell Industries

as a

sell

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

Highlights from the ratings report include:

  • DSWL has underperformed the S&P 500 Index, declining 16.07% 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 gross profit margin for DESWELL INDUSTRIES INC is rather low; currently it is at 16.06%. Regardless of DSWL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -2.43% trails the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, DESWELL INDUSTRIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • DESWELL INDUSTRIES INC reported significant earnings per share improvement 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 year. During the past fiscal year, DESWELL INDUSTRIES INC continued to lose money by earning -$0.14 versus -$0.47 in the prior year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electronic Equipment, Instruments & Components industry. The net income increased by 73.1% when compared to the same quarter one year prior, rising from -$1.13 million to -$0.31 million.

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