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."

Capstead Mortgage

Dividend Yield: 10.50%

Capstead Mortgage

(NYSE:

CMO

) shares currently have a dividend yield of 10.50%.

Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 8.57.

The average volume for Capstead Mortgage has been 1,146,600 shares per day over the past 30 days. Capstead Mortgage has a market cap of $952.5 million and is part of the real estate industry. Shares are down 18.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Capstead Mortgage

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, 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 underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income has significantly decreased by 31.8% when compared to the same quarter one year ago, falling from $36.56 million to $24.94 million.
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
  • The share price of CAPSTEAD MORTGAGE CORP has not done very well: it is down 19.71% 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.
  • CAPSTEAD MORTGAGE CORP's earnings per share declined by 37.1% in the most recent quarter compared to 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, CAPSTEAD MORTGAGE CORP increased its bottom line by earning $1.33 versus $0.93 in the prior year. For the next year, the market is expecting a contraction of 18.8% in earnings ($1.08 versus $1.33).
  • CMO, with its decline in revenue, underperformed when compared the industry average of 9.8%. Since the same quarter one year prior, revenues fell by 11.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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New Residential Investment

Dividend Yield: 14.80%

New Residential Investment

(NYSE:

NRZ

) shares currently have a dividend yield of 14.80%.

New Residential Investment Corp., a real estate investment trust (REIT), focuses on investing in and managing residential mortgage related assets. It operates through Servicing Related Assets, Residential Securities and Loans, and Other Investments segments. The company has a P/E ratio of 6.60.

The average volume for New Residential Investment has been 2,387,300 shares per day over the past 30 days. New Residential Investment has a market cap of $2.9 billion and is part of the real estate industry. Shares are up 0.3% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

New Residential Investment

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 39.2% when compared to the same quarter one year ago, falling from $123.50 million to $75.12 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, NEW RESIDENTIAL INV CP's return on equity is below that of both the industry average and the S&P 500.
  • NEW RESIDENTIAL INV CP 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, NEW RESIDENTIAL INV CP increased its bottom line by earning $2.52 versus $1.96 in the prior year. For the next year, the market is expecting a contraction of 26.2% in earnings ($1.86 versus $2.52).
  • The revenue fell significantly faster than the industry average of 9.8%. Since the same quarter one year prior, revenues fell by 22.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for NEW RESIDENTIAL INV CP is currently very high, coming in at 83.38%. Regardless of NRZ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NRZ's net profit margin of 35.72% compares favorably to the industry average.

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Encana

Dividend Yield: 4.20%

Encana

(NYSE:

ECA

) shares currently have a dividend yield of 4.20%.

Encana Corporation, together with its subsidiaries, engages in the development, exploration, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States.

The average volume for Encana has been 11,147,100 shares per day over the past 30 days. Encana has a market cap of $5.6 billion and is part of the energy industry. Shares are down 48.2% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Encana

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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 694.1% when compared to the same quarter one year ago, falling from $271.00 million to -$1,610.00 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENCANA CORP'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 $298.00 million or 61.14% 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 68.99%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 616.21% 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.
  • ENCANA 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. 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, ENCANA CORP increased its bottom line by earning $4.59 versus $0.31 in the prior year. For the next year, the market is expecting a contraction of 103.9% in earnings (-$0.18 versus $4.59).

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