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."

Bank of Nova Scotia

Dividend Yield: 5.10%

Bank of Nova Scotia

(NYSE:

BNS

) shares currently have a dividend yield of 5.10%.

The Bank of Nova Scotia provides various personal, commercial, corporate, and investment banking services in Canada and internationally. The company has a P/E ratio of 9.11.

The average volume for Bank of Nova Scotia has been 1,181,200 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $47.6 billion and is part of the banking industry. Shares are down 1.2% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Bank of Nova Scotia

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • Net operating cash flow has significantly decreased to -$7,712.00 million or 237.15% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • BNS'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 25.34%, 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 has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market, BANK OF NOVA SCOTIA's return on equity exceeds that of both the industry average and the S&P 500.
  • BANK OF NOVA SCOTIA has improved earnings per share by 31.8% in the most recent quarter compared to the same quarter a year ago. Stable Earnings per share over the past year indicate the company has sound management over its earnings and share float. During the past fiscal year, BANK OF NOVA SCOTIA increased its bottom line by earning $5.67 versus $5.66 in the prior year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Banks industry. The net income increased by 29.9% when compared to the same quarter one year prior, rising from $1,373.00 million to $1,783.00 million.

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TransCanada

Dividend Yield: 4.60%

TransCanada

(NYSE:

TRP

) shares currently have a dividend yield of 4.60%.

TransCanada Corporation operates as an energy infrastructure company in North America. The company operates through three segments: Natural Gas Pipelines, Liquids Pipelines, and Energy. The company has a P/E ratio of 28.54.

The average volume for TransCanada has been 1,373,700 shares per day over the past 30 days. TransCanada has a market cap of $25.3 billion and is part of the energy industry. Shares are up 12.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

TransCanada

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • The debt-to-equity ratio is very high at 2.14 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 0.31, which clearly demonstrates the inability to cover short-term cash needs.
  • 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 on the basis of return on equity, TRANSCANADA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • TRANSCANADA 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, TRANSCANADA CORP swung to a loss, reporting -$1.75 versus $2.46 in the prior year.
  • 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 604.1% when compared to the same quarter one year ago, falling from $483.00 million to -$2,435.00 million.
  • The share price of TRANSCANADA CORP has not done very well: it is down 18.00% 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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Kennametal

Dividend Yield: 4.10%

Kennametal

(NYSE:

KMT

) shares currently have a dividend yield of 4.10%.

Kennametal Inc. manufactures and supplies tooling, engineered components, and advanced materials consumed in production processes worldwide. It operates through two segments, Industrial and Infrastructure.

The average volume for Kennametal has been 2,007,800 shares per day over the past 30 days. Kennametal has a market cap of $1.6 billion and is part of the industrial industry. Shares are up 2.9% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Kennametal

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow 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 Machinery industry and the overall market, KENNAMETAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for KENNAMETAL INC is currently lower than what is desirable, coming in at 31.98%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -32.29% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $65.84 million or 29.03% 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.
  • KMT'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 45.46%, 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.
  • KMT, with its decline in revenue, slightly underperformed the industry average of 20.0%. Since the same quarter one year prior, revenues fell by 22.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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