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."

Transocean

Dividend Yield: 20.00%

Transocean

(NYSE:

RIG

) shares currently have a dividend yield of 20.00%.

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

The average volume for Transocean has been 12,276,400 shares per day over the past 30 days. Transocean has a market cap of $5.4 billion and is part of the energy industry. Shares are down 18.2% year-to-date as of the close of trading on Thursday.

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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, 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 Energy Equipment & Services industry. The net income has significantly decreased by 417.2% when compared to the same quarter one year ago, falling from $233.00 million to -$739.00 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.
  • Net operating cash flow has decreased to $566.00 million or 26.77% 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 64.29%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 438.33% 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.
  • TRANSOCEAN LTD 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TRANSOCEAN LTD swung to a loss, reporting -$5.25 versus $3.85 in the prior year. This year, the market expects an improvement in earnings ($1.50 versus -$5.25).

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ARMOUR Residential REIT

Dividend Yield: 15.00%

ARMOUR Residential REIT

(NYSE:

ARR

) shares currently have a dividend yield of 15.00%.

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 Capital Management LP.

The average volume for ARMOUR Residential REIT has been 3,275,900 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $1.1 billion and is part of the real estate industry. Shares are down 13.3% year-to-date as of the close of trading on Thursday.

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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 and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • 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.
  • ARR has underperformed the S&P 500 Index, declining 23.51% 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 ARMOUR RESIDENTIAL REIT INC is currently very high, coming in at 91.13%. 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 -136.87% significantly underperformed when compared to the industry average.
  • 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 reported poor results of -$0.55 versus -$0.53 in the prior year. This year, the market expects an improvement in earnings ($0.41 versus -$0.55).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 73.5% when compared to the same quarter one year prior, rising from -$540.78 million to -$143.17 million.

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Tronox

Dividend Yield: 4.90%

Tronox

(NYSE:

TROX

) shares currently have a dividend yield of 4.90%.

Tronox Limited produces and markets titanium bearing mineral sands and titanium dioxide (TiO2) pigment in North America, Europe, South Africa, and the Asia-Pacific region. It primarily operates in two segments, Mineral Sands and Pigment.

The average volume for Tronox has been 659,700 shares per day over the past 30 days. Tronox has a market cap of $1.3 billion and is part of the chemicals industry. Shares are down 15% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

Tronox

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, poor profit margins and generally high debt management risk.

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 Chemicals industry. The net income has significantly decreased by 3842.8% when compared to the same quarter one year ago, falling from -$7.00 million to -$276.00 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 Chemicals industry and the overall market, TRONOX LTD'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 $52.00 million or 59.05% 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 gross profit margin for TRONOX LTD is currently lower than what is desirable, coming in at 31.25%. Regardless of TROX's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, TROX's net profit margin of -69.00% significantly underperformed when compared to the industry average.
  • The debt-to-equity ratio of 1.49 is relatively high when compared with the industry average, suggesting a need for better debt level management. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 4.25, which shows the ability to cover short-term cash needs.

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