4 Sell-Rated Dividend Stocks

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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 and 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 4 stocks with substantial yields, that ultimately, we have rated "Sell."

Enerplus

Dividend Yield: 7.20%

Enerplus (NYSE: ERF) shares currently have a dividend yield of 7.20%.

Enerplus Corporation, together with subsidiaries, engages in the exploration and development of crude oil and natural gas in the United States and Canada. Currently there are 4 analysts that rate Enerplus a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Enerplus has been 930,100 shares per day over the past 30 days. Enerplus has a market cap of $2.9 billion and is part of the energy industry. Shares are up 14.7% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Enerplus as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • 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, ENERPLUS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $189.39 million or 21.80% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • ERF'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 36.98%, 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. 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.
  • ENERPLUS CORP 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, ENERPLUS CORP swung to a loss, reporting -$0.79 versus $0.62 in the prior year.
  • The current debt-to-equity ratio, 0.35, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.44 is very weak and demonstrates a lack of ability to pay short-term obligations.

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American Capital Mortgage Investment

Dividend Yield: 14.30%

American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 14.30%.

American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 2.84. Currently there are 5 analysts that rate American Capital Mortgage Investment a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for American Capital Mortgage Investment has been 1,460,100 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 7.5% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates American Capital Mortgage Investment as a sell. Among the areas we feel are negative, one of the most important has been the company's poor growth in earnings per share.

Highlights from the ratings report include:
  • AMERICAN CAPITAL MTG INV CP's earnings per share declined by 18.6% 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, AMERICAN CAPITAL MTG INV CP increased its bottom line by earning $8.40 versus $1.72 in the prior year. For the next year, the market is expecting a contraction of 58.3% in earnings ($3.50 versus $8.40).
  • Looking at where the stock is today compared to one year ago, we find that it is higher, and it has outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
  • The gross profit margin for AMERICAN CAPITAL MTG INV CP is currently very high, coming in at 93.10%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 76.53% significantly outperformed against the industry average.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 192.9% when compared to the same quarter one year prior, rising from $17.20 million to $50.39 million.

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American Realty Capital Properties

Dividend Yield: 6.30%

American Realty Capital Properties (NASDAQ: ARCP) shares currently have a dividend yield of 6.30%.

American Realty Capital Properties, Inc. owns and acquires single tenant, freestanding commercial real estate that is net leased on a medium-term basis, primarily to investment grade credit rated and other creditworthy tenants. The company principally invests in retail and office properties. Currently there is 1 analyst that rates American Realty Capital Properties a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for American Realty Capital Properties has been 2,311,700 shares per day over the past 30 days. American Realty Capital Properties has a market cap of $186.5 million and is part of the real estate industry. Shares are up 8.1% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates American Realty Capital Properties 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 97.6% when compared to the same quarter one year ago, falling from -$1.93 million to -$3.80 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 Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN RLTY CAP PPTY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • AMERICAN RLTY CAP PPTY INC has exprienced 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMERICAN RLTY CAP PPTY INC reported poor results of -$0.73 versus -$0.24 in the prior year. This year, the market expects an improvement in earnings (-$0.30 versus -$0.73).
  • Compared to its closing price of one year ago, ARCP's share price has jumped by 31.11%, exceeding the performance of the broader market during that same time frame. Regarding the future course of this stock, we feel that the risks involved in investing in ARCP do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
  • Net operating cash flow has significantly increased by 291.58% to $2.65 million when compared to the same quarter last year. In addition, AMERICAN RLTY CAP PPTY INC has also vastly surpassed the industry average cash flow growth rate of 38.95%.

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Pengrowth Energy

Dividend Yield: 9.10%

Pengrowth Energy (NYSE: PGH) shares currently have a dividend yield of 9.10%.

Pengrowth Energy Corporation engages in the acquisition, exploration, development, and production of oil and natural gas reserves in Canada. The company has a P/E ratio of 170.33. Currently there are 3 analysts that rate Pengrowth Energy a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Pengrowth Energy has been 2,511,000 shares per day over the past 30 days. Pengrowth Energy has a market cap of $2.6 billion and is part of the energy industry. Shares are up 4.6% year to date as of the close of trading on Tuesday.

TheStreet Ratings rates Pengrowth Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, disappointing return on equity and generally high debt management risk.

Highlights from the ratings report include:
  • PGH'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 46.97%, 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. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, PGH is still more expensive than most of the other companies in its industry.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, PENGROWTH ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite currently having a low debt-to-equity ratio of 0.42, 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 0.45 is very low and demonstrates very weak liquidity.
  • PENGROWTH ENERGY CORP 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, PENGROWTH ENERGY CORP reported lower earnings of $0.02 versus $0.26 in the prior year.
  • Net operating cash flow has slightly increased to $207.68 million or 1.53% when compared to the same quarter last year. Despite an increase in cash flow, PENGROWTH ENERGY CORP's cash flow growth rate is still lower than the industry average growth rate of 29.14%.

New From TheStreet: Jim Cramer's Protégé, Dave Peltier, only buys dividend stocks that have the potential for a 3% to 4% yield and 10% growth. Get his best picks for less than $50/year.

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Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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