5 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 5 stocks with substantial yields, that ultimately, we have rated "Sell."

Chesapeake Midstream Partners L.P

Dividend Yield: 5.60%

Chesapeake Midstream Partners L.P (NYSE: CHKM) shares currently have a dividend yield of 5.60%.

Chesapeake Midstream Partners, L.P. owns, operates, develops, and acquires natural gas, natural gas liquids, and oil gathering systems, as well as other midstream energy assets in the United States. The company has a P/E ratio of 36.28.

The average volume for Chesapeake Midstream Partners L.P has been 386,900 shares per day over the past 30 days. Chesapeake Midstream Partners L.P has a market cap of $2.3 billion and is part of the energy industry. Shares are up 20.9% year to date as of the close of trading on Friday.

TheStreet Ratings rates Chesapeake Midstream Partners L.P 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 weak debt management.

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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CHESAPEAKE MIDSTRM PRTNRS-LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Net operating cash flow has significantly decreased to $67.22 million or 51.03% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite currently having a low debt-to-equity ratio of 0.48, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that CHKM's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.69 is low and demonstrates weak liquidity.
  • After a year of stock price fluctuations, the net result is that CHKM's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • CHESAPEAKE MIDSTRM PRTNRS-LP has improved earnings per share by 25.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CHESAPEAKE MIDSTRM PRTNRS-LP reported lower earnings of $1.36 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($1.44 versus $1.36).

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American Realty Capital Properties

Dividend Yield: 5.50%

American Realty Capital Properties (NASDAQ: ARCP) shares currently have a dividend yield of 5.50%.

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.

The average volume for American Realty Capital Properties has been 3,168,100 shares per day over the past 30 days. American Realty Capital Properties has a market cap of $213.2 million and is part of the real estate industry. Shares are up 22.6% year to date as of the close of trading on Thursday.

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 ($0.21 versus -$0.73).
  • Compared to its closing price of one year ago, ARCP's share price has jumped by 40.82%, 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 38.55%.

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Apollo Global Management

Dividend Yield: 17.40%

Apollo Global Management (NYSE: APO) shares currently have a dividend yield of 17.40%.

Apollo Global Management, LLC is a publicly owned investment manager. The firm primarily provides its services to pension and endowment funds, institutional investors, individual investors, pooled investment vehicles, and corporations. The company has a P/E ratio of 11.72.

The average volume for Apollo Global Management has been 819,600 shares per day over the past 30 days. Apollo Global Management has a market cap of $3.2 billion and is part of the financial services industry. Shares are up 39.4% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Apollo Global Management as a sell. Among the areas we feel are negative, one of the most important has been weak operating cash flow.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to -$194.88 million or 316.52% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • 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 Capital Markets industry and the overall market on the basis of return on equity, APOLLO GLOBAL MANAGEMENT LLC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • 42.80% is the gross profit margin for APOLLO GLOBAL MANAGEMENT LLC which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 14.79% trails the industry average.
  • This stock has increased by 81.84% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in APO do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.

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Encana

Dividend Yield: 4.30%

Encana (NYSE: ECA) shares currently have a dividend yield of 4.30%.

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

The average volume for Encana has been 5,268,600 shares per day over the past 30 days. Encana has a market cap of $13.5 billion and is part of the energy industry. Shares are down 4.1% year to date as of the close of trading on Thursday.

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

Highlights from the ratings report include:
  • 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, ENCANA 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 $717.00 million or 35.40% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The gross profit margin for ENCANA CORP is currently lower than what is desirable, coming in at 31.00%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, ECA's net profit margin of -4.98% significantly underperformed when compared to the industry average.
  • In its most recent trading session, ECA has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
  • The debt-to-equity ratio of 1.46 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, ECA has managed to keep a strong quick ratio of 1.90, which demonstrates the ability to cover short-term cash needs.

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Rentech Nitrogen Partners

Dividend Yield: 9.90%

Rentech Nitrogen Partners (NYSE: RNF) shares currently have a dividend yield of 9.90%.

Rentech Nitrogen Partners, L.P. engages in the manufacture and sale of nitrogen fertilizer products for use in the United States. The company operates in two segments, East Dubuque and Pasadena. The company has a P/E ratio of 10.85.

The average volume for Rentech Nitrogen Partners has been 451,900 shares per day over the past 30 days. Rentech Nitrogen Partners has a market cap of $1.2 billion and is part of the chemicals industry. Shares are down 16.6% year to date as of the close of trading on Thursday.

TheStreet Ratings rates Rentech Nitrogen Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and poor profit margins.

Highlights from the ratings report include:
  • Currently the debt-to-equity ratio of 1.77 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, RNF maintains a poor quick ratio of 0.92, which illustrates the inability to avoid short-term cash problems.
  • The gross profit margin for RENTECH NITROGEN PARTNERS LP is currently lower than what is desirable, coming in at 33.50%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 18.99% is above that of the industry average.
  • RENTECH NITROGEN PARTNERS LP reported significant earnings per share improvement 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, RENTECH NITROGEN PARTNERS LP increased its bottom line by earning $2.78 versus $0.36 in the prior year. For the next year, the market is expecting a contraction of 4.1% in earnings ($2.67 versus $2.78).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 422.6% when compared to the same quarter one year prior, rising from $3.36 million to $17.56 million.
  • Net operating cash flow has improved to $17.34 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.

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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