3 Sell-Rated Dividend Stocks: RIG, ARR, APO - TheStreet

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 or Stephanie Link.

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."

Transocean

Dividend Yield: 11.60%

Transocean

(NYSE:

RIG

) shares currently have a dividend yield of 11.60%.

Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells worldwide. The company provides deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services.

The average volume for Transocean has been 10,733,700 shares per day over the past 30 days. Transocean has a market cap of $9.4 billion and is part of the energy industry. Shares are down 48.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Transocean

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 Energy Equipment & Services industry. The net income has significantly decreased by 506.0% when compared to the same quarter one year ago, falling from $546.00 million to -$2,217.00 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 Energy Equipment & Services industry and the overall market, TRANSOCEAN LTD'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 52.69%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 513.51% 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.
  • RIG, with its decline in revenue, underperformed when compared the industry average of 16.0%. Since the same quarter one year prior, revenues slightly dropped by 7.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • RIG's debt-to-equity ratio of 0.71 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 1.42 is sturdy.

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ARMOUR Residential REIT

Dividend Yield: 15.30%

ARMOUR Residential REIT

(NYSE:

ARR

) shares currently have a dividend yield of 15.30%.

ARMOUR Residential REIT, Inc. invests in and manages a portfolio of residential mortgage backed securities in the United States. The company is managed by ARMOUR Residential Management LLC.

The average volume for ARMOUR Residential REIT has been 3,299,400 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $1.4 billion and is part of the real estate industry. Shares are down 1.8% 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 disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • 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, 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 $39.43 million or 54.29% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • In its most recent trading session, ARR 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.
  • ARMOUR RESIDENTIAL REIT INC 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, ARMOUR RESIDENTIAL REIT INC swung to a loss, reporting -$0.53 versus $0.97 in the prior year. This year, the market expects an improvement in earnings ($0.53 versus -$0.53).
  • The gross profit margin for ARMOUR RESIDENTIAL REIT INC is currently very high, coming in at 90.86%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ARR's net profit margin of 55.09% significantly outperformed against the industry.

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Apollo Global Management

Dividend Yield: 12.10%

Apollo Global Management

(NYSE:

APO

) shares currently have a dividend yield of 12.10%.

Apollo Global Management, LLC is a publicly owned investment manager. It primarily provides its services to endowment and sovereign wealth funds, as well as other institutional and individual investors. The firm manages client focused portfolios. The company has a P/E ratio of 15.76.

The average volume for Apollo Global Management has been 1,299,200 shares per day over the past 30 days. Apollo Global Management has a market cap of $3.9 billion and is part of the financial services industry. Shares are down 22.6% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Apollo Global Management

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, 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 Capital Markets industry. The net income has significantly decreased by 98.8% when compared to the same quarter one year ago, falling from $192.52 million to $2.21 million.
  • The gross profit margin for APOLLO GLOBAL MANAGEMENT LLC is currently lower than what is desirable, coming in at 28.17%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 0.99% significantly trails the industry average.
  • Net operating cash flow has decreased to -$1,225.42 million or 37.79% when compared to the same quarter last year. Despite a decrease in cash flow of 37.79%, APOLLO GLOBAL MANAGEMENT LLC is still significantly exceeding the industry average of -183.78%.
  • The share price of APOLLO GLOBAL MANAGEMENT LLC has not done very well: it is down 16.64% 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.
  • APOLLO GLOBAL MANAGEMENT LLC 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, APOLLO GLOBAL MANAGEMENT LLC increased its bottom line by earning $3.97 versus $1.95 in the prior year. For the next year, the market is expecting a contraction of 56.2% in earnings ($1.74 versus $3.97).

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