Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer

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: 13.30%

Ellington Residential Mortgage REIT

(NYSE:

EARN

) shares currently have a dividend yield of 13.30%.

Ellington Residential Mortgage REIT is a real estate investment trust. The company has a P/E ratio of 9.32.

The average volume for Ellington Residential Mortgage REIT has been 45,500 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $151.0 million and is part of the real estate industry. Shares are up 1.4% year-to-date as of the close of trading on Monday.

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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 unimpressive growth in 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 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 840.8% when compared to the same quarter one year ago, falling from -$0.13 million to -$1.18 million.
  • 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.
  • The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 85.20%. Regardless of EARN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EARN's net profit margin of -9.96% significantly underperformed when compared to the industry average.
  • EARN, with its decline in revenue, underperformed when compared the industry average of 10.0%. Since the same quarter one year prior, revenues slightly dropped by 2.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ELLINGTON RESIDENTIAL MTG's return on equity is below that of both the industry average and the S&P 500.

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Midcoast Energy Partners

Dividend Yield: 9.50%

Midcoast Energy Partners

(NYSE:

MEP

) shares currently have a dividend yield of 9.50%.

Midcoast Energy Partners, L.P. engages in gathering, processing, treating, transporting, and marketing natural gas and natural gas liquids (NGL) in the United States. It operates through two segments, Gathering, Processing, and Transportation; and Logistics and Marketing. The company has a P/E ratio of 10.34.

The average volume for Midcoast Energy Partners has been 112,000 shares per day over the past 30 days. Midcoast Energy Partners has a market cap of $324.9 million and is part of the energy industry. Shares are up 5.1% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Midcoast Energy Partners

as a

sell

. Among the areas we feel are negative, one of the most important has been poor profit margins.

Highlights from the ratings report include:

  • The gross profit margin for MIDCOAST ENERGY PARTNERS LP is currently extremely low, coming in at 12.71%. Regardless of MEP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MEP's net profit margin of 4.27% compares favorably to the industry average.
  • MIDCOAST ENERGY PARTNERS LP 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, MIDCOAST ENERGY PARTNERS LP increased its bottom line by earning $1.40 versus $0.21 in the prior year. For the next year, the market is expecting a contraction of 70.7% in earnings ($0.41 versus $1.40).
  • Despite the weak revenue results, MEP has outperformed against the industry average of 19.6%. Since the same quarter one year prior, revenues slightly dropped by 6.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that MEP's debt-to-equity ratio is low, the quick ratio, which is currently 0.52, displays a potential problem in covering short-term cash needs.
  • Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MIDCOAST ENERGY PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.

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EV Energy Partners

Dividend Yield: 14.10%

EV Energy Partners

(NASDAQ:

EVEP

) shares currently have a dividend yield of 14.10%.

EV Energy Partners, L.P. engages in the acquisition, development, and production of oil and natural gas properties in the United States. The company operates in two segments, Exploration and Production, and Midstream. The company has a P/E ratio of 5.50.

The average volume for EV Energy Partners has been 619,700 shares per day over the past 30 days. EV Energy Partners has a market cap of $692.6 million and is part of the energy industry. Shares are down 25% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

EV Energy Partners

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 weak operating cash flow.

Highlights from the ratings report include:

  • EVEP'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 59.21%, 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.
  • Net operating cash flow has declined marginally to $31.03 million or 6.71% when compared to the same quarter last year. Despite a decrease in cash flow of 6.71%, EV ENERGY PARTNERS LP is in line with the industry average cash flow growth rate of -12.11%.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EV ENERGY PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • EV ENERGY PARTNERS LP 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, EV ENERGY PARTNERS LP turned its bottom line around by earning $2.55 versus -$1.69 in the prior year. For the next year, the market is expecting a contraction of 72.9% in earnings ($0.69 versus $2.55).
  • EVEP's debt-to-equity ratio of 0.97 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.97 is weak.

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