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."

Capitala Finance

Dividend Yield: 13.80%

Capitala Finance

(NASDAQ:

CPTA

) shares currently have a dividend yield of 13.80%.

Capitala Finance Corp. is a Business Development Company specializing in investments in traditional mezzanine, senior subordinated and unitranche debt, second-lien loans, equity securities issued by lower and traditional middle-market companies, and small and middle-market companies. The company has a P/E ratio of 75.61.

The average volume for Capitala Finance has been 71,300 shares per day over the past 30 days. Capitala Finance has a market cap of $215.1 million and is part of the financial services industry. Shares are up 11.3% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Capitala Finance

as a

sell

. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • CPTA has underperformed the S&P 500 Index, declining 21.00% 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.
  • 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 Capital Markets industry and the overall market, CAPITALA FINANCE CORP's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for CAPITALA FINANCE CORP is currently very high, coming in at 74.35%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -53.88% is in-line with the industry average.
  • Net operating cash flow has significantly increased by 75.57% to -$10.88 million when compared to the same quarter last year. In addition, CAPITALA FINANCE CORP has also vastly surpassed the industry average cash flow growth rate of -198.91%.
  • CAPITALA FINANCE CORP has improved earnings per share by 33.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CAPITALA FINANCE CORP turned its bottom line around by earning $0.99 versus -$0.27 in the prior year. This year, the market expects an improvement in earnings ($1.88 versus $0.99).

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Westmoreland Resource Partners

Dividend Yield: 17.40%

Westmoreland Resource Partners

(NYSE:

WMLP

) shares currently have a dividend yield of 17.40%.

Westmoreland Resource Partners, LP produces and markets thermal coal in the United States. It also produces surface mined coal in Ohio. The company has a P/E ratio of 9.77.

The average volume for Westmoreland Resource Partners has been 4,100 shares per day over the past 30 days. Westmoreland Resource Partners has a market cap of $26.3 million and is part of the metals & mining industry. Shares are up 14.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Westmoreland Resource Partners

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, 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 23.52 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, WMLP has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity 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, WESTMORELAND RES PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for WESTMORELAND RES PARTNERS LP is rather low; currently it is at 23.42%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, WMLP's net profit margin of -9.60% significantly underperformed when compared to the industry average.
  • WMLP'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 59.74%, 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.
  • WESTMORELAND RES PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, WESTMORELAND RES PARTNERS LP reported poor results of -$5.71 versus -$4.61 in the prior year.

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Midcoast Energy Partners

Dividend Yield: 18.30%

Midcoast Energy Partners

(NYSE:

MEP

) shares currently have a dividend yield of 18.30%.

Midcoast Energy Partners, L.P. engages in gathering, processing, treating, transporting, and marketing natural gas, natural gas liquids (NGL), crude oil, and condensate in the United States. It operates through two segments, Gathering, Processing and Transportation; and Logistics and Marketing.

The average volume for Midcoast Energy Partners has been 158,100 shares per day over the past 30 days. Midcoast Energy Partners has a market cap of $354.1 million and is part of the energy industry. Shares are down 16.1% year-to-date as of the close of trading on Tuesday.

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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 generally disappointing historical performance in the stock itself, generally high debt management risk, disappointing return on equity, weak operating cash flow and poor profit margins.

Highlights from the ratings report include:

  • MEP'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 38.74%, which is also worse than the performance of the S&P 500 Index. 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.
  • Despite currently having a low debt-to-equity ratio of 0.52, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.35 is very low and demonstrates very weak liquidity.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, MIDCOAST ENERGY PARTNERS LP's return on equity has significantly outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Net operating cash flow has decreased to $123.30 million or 26.69% 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 -49.05%.
  • The gross profit margin for MIDCOAST ENERGY PARTNERS LP is currently extremely low, coming in at 2.57%. Regardless of MEP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -4.67% trails the industry average.

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