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."

Western Asset Mortgage Capital

Dividend Yield: 17.10%

Western Asset Mortgage Capital

(NYSE:

WMC

) shares currently have a dividend yield of 17.10%.

Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The company has a P/E ratio of 4.50.

The average volume for Western Asset Mortgage Capital has been 524,100 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $628.0 million and is part of the real estate industry. Shares are up 1.6% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Western Asset Mortgage Capital

as a

sell

. The area that we feel has been the company's primary weakness has been its poor profit margins.

Highlights from the ratings report include:

  • The gross profit margin for WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 92.52%. Regardless of WMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.00% trails the industry average.
  • Net operating cash flow has significantly increased by 126.32% to $26.06 million when compared to the same quarter last year. In addition, WESTERN ASSET MTG CAPITAL CP has also vastly surpassed the industry average cash flow growth rate of 2.08%.
  • 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, WESTERN ASSET MTG CAPITAL CP's return on equity exceeds that of both the industry average and the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, and has traded in line with the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

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Midcoast Energy Partners

Dividend Yield: 13.50%

Midcoast Energy Partners

(NYSE:

MEP

) shares currently have a dividend yield of 13.50%.

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 10.86.

The average volume for Midcoast Energy Partners has been 86,700 shares per day over the past 30 days. Midcoast Energy Partners has a market cap of $233.3 million and is part of the energy industry. Shares are down 23.9% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Midcoast Energy Partners

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 5100.0% when compared to the same quarter one year ago, falling from $0.40 million to -$20.00 million.
  • The gross profit margin for MIDCOAST ENERGY PARTNERS LP is currently extremely low, coming in at 1.14%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.28% trails that of the industry average.
  • Net operating cash flow has decreased to $168.20 million or 21.32% when compared to the same quarter last year. Despite a decrease in cash flow MIDCOAST ENERGY PARTNERS LP is still fairing well by exceeding its industry average cash flow growth rate of -53.30%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 53.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 4500.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • MIDCOAST ENERGY PARTNERS LP 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, 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 133.2% in earnings (-$0.47 versus $1.40).

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Noranda Aluminum

Dividend Yield: 7.70%

Noranda Aluminum

(NYSE:

NOR

) shares currently have a dividend yield of 7.70%.

Noranda Aluminum Holding Corporation produces and sells primary aluminum and rolled aluminum coils in the United States. The company's Bauxite segment mines, produces, and sells bauxite used for alumina production.

The average volume for Noranda Aluminum has been 1,647,400 shares per day over the past 30 days. Noranda Aluminum has a market cap of $36.0 million and is part of the metals & mining industry. Shares are down 83% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates

Noranda Aluminum

as a

sell

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

Highlights from the ratings report include:

  • The debt-to-equity ratio is very high at 10.18 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, NOR has a quick ratio of 0.66, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • The gross profit margin for NORANDA ALUMINUM HOLDING CP is rather low; currently it is at 16.38%. Regardless of NOR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NOR's net profit margin of -0.78% significantly underperformed when compared to the industry average.
  • NOR'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 85.29%, 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.
  • 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. Compared to other companies in the Metals & Mining industry and the overall market, NORANDA ALUMINUM HOLDING CP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 251.28% to $29.50 million when compared to the same quarter last year. In addition, NORANDA ALUMINUM HOLDING CP has also vastly surpassed the industry average cash flow growth rate of 20.77%.

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