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."

Murphy Oil

Dividend Yield: 6.30%

Murphy Oil

(NYSE:

MUR

) shares currently have a dividend yield of 6.30%.

Murphy Oil Corporation operates as an oil and gas exploration and production company worldwide. It explores for and produces crude oil, natural gas, and natural gas liquids. The company was formerly known as Murphy Corporation and changed its name to Murphy Oil Corporation in 1964.

The average volume for Murphy Oil has been 3,911,600 shares per day over the past 30 days. Murphy Oil has a market cap of $3.8 billion and is part of the energy industry. Shares are down 53.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Murphy Oil

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, 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 749.3% when compared to the same quarter one year ago, falling from $245.71 million to -$1,595.43 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 Oil, Gas & Consumable Fuels industry and the overall market, MURPHY OIL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $552.44 million or 38.22% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 54.13%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 710.59% 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.
  • MURPHY OIL CORP 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, MURPHY OIL CORP increased its bottom line by earning $5.71 versus $4.69 in the prior year. For the next year, the market is expecting a contraction of 157.7% in earnings (-$3.29 versus $5.71).

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VEREIT

Dividend Yield: 6.80%

VEREIT

(NYSE:

VER

) shares currently have a dividend yield of 6.80%.

VEREIT, Inc. is a publicly owned real estate investment trust. It owns and acquires single tenant, freestanding commercial real estate that is net leased on a medium-term basis, primarily to investment grade credit rated and other creditworthy tenants.

The average volume for VEREIT has been 5,298,100 shares per day over the past 30 days. VEREIT has a market cap of $7.3 billion and is part of the real estate industry. Shares are down 10.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

VEREIT

as a

sell

. Among the areas we feel are negative, one of the most important has been weak operating cash flow.

Highlights from the ratings report include:

  • Net operating cash flow has decreased to $177.35 million or 24.19% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • After a year of stock price fluctuations, the net result is that VER'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. 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 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 Real Estate Investment Trusts (REITs) industry and the overall market, VEREIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • VER, with its decline in revenue, underperformed when compared the industry average of 6.1%. Since the same quarter one year prior, revenues fell by 15.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • 37.53% is the gross profit margin for VEREIT INC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, VER's net profit margin of 1.95% significantly trails the industry average.

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Pattern Energy Group

Dividend Yield: 6.90%

Pattern Energy Group

(NASDAQ:

PEGI

) shares currently have a dividend yield of 6.90%.

Pattern Energy Group Inc., an independent power company, owns and operates power projects in the United States, Canada, and Chile. As of September 3, 2015, the company owned interests in 16 wind power projects with the capacity of 2,282 megawatts.

The average volume for Pattern Energy Group has been 988,300 shares per day over the past 30 days. Pattern Energy Group has a market cap of $1.6 billion and is part of the utilities industry. Shares are down 10.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Pattern Energy Group

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, 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 Independent Power Producers & Energy Traders industry. The net income has significantly decreased by 307.9% when compared to the same quarter one year ago, falling from -$7.21 million to -$29.41 million.
  • The debt-to-equity ratio is very high at 2.17 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.27, which clearly demonstrates the inability to cover short-term cash needs.
  • 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 Independent Power Producers & Energy Traders industry and the overall market, PATTERN ENERGY GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $34.68 million or 13.68% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The share price of PATTERN ENERGY GROUP INC has not done very well: it is down 16.20% 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.

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