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."

Life Partners Holdings

Dividend Yield: 11.70%

Life Partners Holdings (NASDAQ: LPHI) shares currently have a dividend yield of 11.70%.

Life Partners Holdings, Inc., through its subsidiary, Life Partners, Inc., operates in the secondary market for life insurance in the United States. It facilitates the sale of life settlements between sellers and purchasers, but does not take possession or control of the policies.

The average volume for Life Partners Holdings has been 104,600 shares per day over the past 30 days. Life Partners Holdings has a market cap of $63.8 million and is part of the insurance industry. Shares are up 30% year to date as of the close of trading on Friday.

TheStreet Ratings rates Life Partners Holdings as a sell. Among the areas we feel are negative, one of the most important has been an overall disappointing return on equity.

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 Diversified Financial Services industry and the overall market, LIFE PARTNERS HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • LIFE PARTNERS HOLDINGS INC has improved earnings per share by 20.0% 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, LIFE PARTNERS HOLDINGS INC swung to a loss, reporting -$0.17 versus $1.25 in the prior year.
  • The revenue fell significantly faster than the industry average of 3.4%. Since the same quarter one year prior, revenues fell by 35.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • LPHI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.60, which clearly demonstrates the ability to cover short-term cash needs.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Diversified Financial Services industry average. The net income increased by 30.4% when compared to the same quarter one year prior, rising from -$1.08 million to -$0.75 million.

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AG Mortgage Investment

Dividend Yield: 12.50%

AG Mortgage Investment (NYSE: MITT) shares currently have a dividend yield of 12.50%.

AG Mortgage Investment Trust, Inc., a real estate investment trust, focuses on investing, acquiring, and managing a portfolio of residential mortgage assets, and other real estate-related securities and financial assets. The company has a P/E ratio of 3.55.

The average volume for AG Mortgage Investment has been 379,200 shares per day over the past 30 days. AG Mortgage Investment has a market cap of $701.1 million and is part of the real estate industry. Shares are up 8.6% year to date as of the close of trading on Friday.

TheStreet Ratings rates AG Mortgage Investment as a sell. The area that we feel has been the company's primary weakness has been its feeble growth in its earnings per share.

Highlights from the ratings report include:
  • AG MORTGAGE INVESTMENT TRUST has improved earnings per share by 6.9% 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, AG MORTGAGE INVESTMENT TRUST increased its bottom line by earning $7.34 versus $2.01 in the prior year. For the next year, the market is expecting a contraction of 53.7% in earnings ($3.40 versus $7.34).
  • The gross profit margin for AG MORTGAGE INVESTMENT TRUST is currently very high, coming in at 89.80%. Regardless of MITT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MITT's net profit margin of 30.67% compares favorably to the industry average.
  • Investors have driven up the company's shares by 29.01% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the future course of this stock, we feel that the risks involved in investing in MITT do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
  • 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 209.3% when compared to the same quarter one year prior, rising from $5.77 million to $17.85 million.

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Oi

Dividend Yield: 10.10%

Oi (NYSE: OIBR) shares currently have a dividend yield of 10.10%.

Oi S.A., through its subsidiaries, provides integrated telecommunication service for residential customers, companies, and governmental agencies in Brazil.

The average volume for Oi has been 3,203,500 shares per day over the past 30 days. Oi has a market cap of $4.2 billion and is part of the telecommunications industry. Shares are down 36.7% year to date as of the close of trading on Friday.

TheStreet Ratings rates Oi 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 and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • OI SA 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, OI SA reported lower earnings of $0.45 versus $0.92 in the prior year. For the next year, the market is expecting a contraction of 58.1% in earnings ($0.19 versus $0.45).
  • 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 Diversified Telecommunication Services industry. The net income has significantly decreased by 28.1% when compared to the same quarter one year ago, falling from $71.96 million to $51.71 million.
  • Currently the debt-to-equity ratio of 1.68 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, OIBR maintains a poor quick ratio of 0.91, which illustrates the inability to avoid short-term cash problems.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 55.67%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 75.66% compared to the year-earlier 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.
  • 40.20% is the gross profit margin for OI SA which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.46% trails the industry average.

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Charm Communications

Dividend Yield: 11.80%

Charm Communications (NASDAQ: CHRM) shares currently have a dividend yield of 11.80%.

Charm Communications Inc. operates as an advertising agency in China. The company offers a range of advertising agency services from planning and managing the advertising campaigns to creating and placing the advertisements.

The average volume for Charm Communications has been 6,600 shares per day over the past 30 days. Charm Communications has a market cap of $165.3 million and is part of the media industry. Shares are up 5% year to date as of the close of trading on Friday.

TheStreet Ratings rates Charm Communications as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, 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 Media industry. The net income has significantly decreased by 134.2% when compared to the same quarter one year ago, falling from $14.79 million to -$5.06 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. Compared to other companies in the Media industry and the overall market, CHARM COMMUNICATIONS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for CHARM COMMUNICATIONS INC is currently lower than what is desirable, coming in at 27.60%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -10.73% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 58.80%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 136.11% compared to the year-earlier 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.
  • CHARM COMMUNICATIONS 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CHARM COMMUNICATIONS INC swung to a loss, reporting -$0.12 versus $1.12 in the prior year. This year, the market expects an improvement in earnings ($0.37 versus -$0.12).

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.

TransAlta Corporation

Dividend Yield: 8.40%

TransAlta Corporation (NYSE: TAC) shares currently have a dividend yield of 8.40%.

TransAlta Corporation operates as a non-regulated electricity generation and energy marketing company in Canada, the United States, and Australia. The company engages in the generation and wholesale trade of electricity and other energy-related commodities and derivatives.

The average volume for TransAlta Corporation has been 99,400 shares per day over the past 30 days. TransAlta Corporation has a market cap of $3.4 billion and is part of the utilities industry. Shares are down 10.2% year to date as of the close of trading on Friday.

TheStreet Ratings rates TransAlta Corporation 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, disappointing return on equity, generally disappointing historical performance in the stock itself and generally high debt management risk.

Highlights from the ratings report include:
  • TRANSALTA CORP 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 two years. During the past fiscal year, TRANSALTA CORP swung to a loss, reporting -$2.72 versus $1.30 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 Independent Power Producers & Energy Traders industry. The net income has significantly decreased by 102.1% when compared to the same quarter one year ago, falling from $96.00 million to -$2.00 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. Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market, TRANSALTA CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The share price of TRANSALTA CORP has not done very well: it is down 20.66% 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. 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.
  • Even though the current debt-to-equity ratio is 1.42, it is still below the industry average, suggesting that this level of debt is acceptable within the Independent Power Producers & Energy Traders industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.41 is very low and demonstrates very weak liquidity.

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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