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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."

Spark Energy

Dividend Yield: 8.00%

Spark Energy

(NASDAQ:

SPKE

) shares currently have a dividend yield of 8.00%.

Spark Energy, Inc., through its subsidiaries, operates as an independent retail energy services company in the United States. It operates through two segments, Retail Natural Gas and Retail Electricity. The company has a P/E ratio of 25.14.

The average volume for Spark Energy has been 31,500 shares per day over the past 30 days. Spark Energy has a market cap of $56.1 million and is part of the utilities industry. Shares are up 29.7% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Spark Energy

TheStreet Recommends

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and poor profit margins.

Highlights from the ratings report include:

  • The debt-to-equity ratio is very high at 4.52 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SPKE maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
  • The gross profit margin for SPARK ENERGY INC is rather low; currently it is at 16.22%. Regardless of SPKE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SPKE's net profit margin of 1.43% is significantly lower than the industry average.
  • Compared to its closing price of one year ago, SPKE's share price has jumped by 30.52%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • SPARK ENERGY INC's earnings per share declined by 11.4% in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.60 versus -$2.19).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Electric Utilities industry average. The net income increased by 23.8% when compared to the same quarter one year prior, going from $1.06 million to $1.31 million.

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TransAlta

Dividend Yield: 18.20%

TransAlta

(NYSE:

TAC

) shares currently have a dividend yield of 18.20%.

TransAlta Corporation operates as a non-regulated electricity generation and energy marketing company in Canada, the United States, and Western Australia. The company's Generation segment owns and operates hydro, wind, and natural gas- and coal-fired facilities. The company has a P/E ratio of 7.92.

The average volume for TransAlta has been 243,800 shares per day over the past 30 days. TransAlta has a market cap of $1.1 billion and is part of the utilities industry. Shares are down 58.1% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

TransAlta

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:

  • TAC'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 58.12%, 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 $200.00 million or 7.40% when compared to the same quarter last year. Despite a decrease in cash flow TRANSALTA CORP is still fairing well by exceeding its industry average cash flow growth rate of -37.17%.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market, TRANSALTA CORP's return on equity is below that of both the industry average and the S&P 500.
  • Even though the current debt-to-equity ratio is 1.29, it is still below the industry average, suggesting that this level of debt is acceptable within the Independent Power Producers & Energy Traders industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.73 is weak.
  • The gross profit margin for TRANSALTA CORP is rather high; currently it is at 52.42%. Regardless of TAC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TAC's net profit margin of 25.89% significantly outperformed against the industry.

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AdCare Health Systems

Dividend Yield: 8.40%

AdCare Health Systems

(AMEX:

ADK

) shares currently have a dividend yield of 8.40%.

AdCare Health Systems, Inc., through its subsidiaries, owns, operates, and manages skilled nursing facilities and assisted living facilities in the states of Arkansas, Georgia, North Carolina, Ohio, Oklahoma, and South Carolina. The company has a P/E ratio of 71.25.

The average volume for AdCare Health Systems has been 29,500 shares per day over the past 30 days. AdCare Health Systems has a market cap of $56.7 million and is part of the health services industry. Shares are down 31.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

AdCare Health Systems

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, weak operating cash flow, poor profit margins 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 Health Care Providers & Services industry. The net income has significantly decreased by 93.1% when compared to the same quarter one year ago, falling from -$2.64 million to -$5.09 million.
  • The debt-to-equity ratio is very high at 3.14 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, ADK maintains a poor quick ratio of 0.78, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has significantly decreased to -$8.07 million or 203.11% 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 ADCARE HEALTH SYSTEMS INC is rather low; currently it is at 19.43%. Regardless of ADK's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, ADK's net profit margin of -21.83% significantly underperformed when compared to the industry average.
  • ADK'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 25.59%, 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.

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