3 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 3 stocks with substantial yields, that ultimately, we have rated "Sell."

Home Loan Servicing Solutions

Dividend Yield: 7.40%

Home Loan Servicing Solutions (NASDAQ: HLSS) shares currently have a dividend yield of 7.40%.

Home Loan Servicing Solutions, Ltd., through its subsidiaries, engages in the acquisition of mortgage servicing assets. Its mortgage servicing assets consists of servicing advances, mortgage servicing rights, rights to mortgage servicing rights, and other related assets. The company has a P/E ratio of 13.37.

The average volume for Home Loan Servicing Solutions has been 678,300 shares per day over the past 30 days. Home Loan Servicing Solutions has a market cap of $1.3 billion and is part of the real estate industry. Shares are up 19.5% year to date as of the close of trading on Friday.

TheStreet Ratings rates Home Loan Servicing Solutions as a sell. The area that we feel has been the company's primary weakness has been its disappointing return on equity.

Highlights from the ratings report include:
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Thrifts & Mortgage Finance industry and the overall market, HOME LOAN SERVICING SOLTNS's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for HOME LOAN SERVICING SOLTNS is currently very high, coming in at 95.50%. It has increased significantly from the same period last year. Along with this, the net profit margin of 54.98% significantly outperformed against the industry average.
  • Net operating cash flow has significantly increased by 5531.13% to $367.09 million when compared to the same quarter last year. In addition, HOME LOAN SERVICING SOLTNS has also vastly surpassed the industry average cash flow growth rate of -187.82%.
  • This stock has increased by 62.28% over the past year, outperforming the rise in the S&P 500 Index during the same period. Despite the fact that the stock's value has already enjoyed nice gains in the past year, we feel that the risks surrounding an investment in this stock outweigh any potential future returns.
  • HOME LOAN SERVICING SOLTNS 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HOME LOAN SERVICING SOLTNS turned its bottom line around by earning $1.23 versus -$0.01 in the prior year. This year, the market expects an improvement in earnings ($1.83 versus $1.23).

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Penn West Petroleum

Dividend Yield: 11.40%

Penn West Petroleum (NYSE: PWE) shares currently have a dividend yield of 11.40%.

Penn West Petroleum Ltd., an exploration and production company, engages in acquiring, exploring, developing, exploiting, and holding interests in petroleum and natural gas properties and related assets in western Canada. The company has a P/E ratio of 186.20.

The average volume for Penn West Petroleum has been 2,630,400 shares per day over the past 30 days. Penn West Petroleum has a market cap of $4.5 billion and is part of the energy industry. Shares are down 13.1% year to date as of the close of trading on Friday.

TheStreet Ratings rates Penn West Petroleum as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, feeble growth in its earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 45.01%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 266.66% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
  • PENN WEST PETROLEUM LTD 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, PENN WEST PETROLEUM LTD reported lower earnings of $0.37 versus $1.37 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 264.4% when compared to the same quarter one year ago, falling from $59.00 million to -$97.00 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PENN WEST PETROLEUM LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • PWE, with its decline in revenue, underperformed when compared the industry average of 6.7%. Since the same quarter one year prior, revenues fell by 20.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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.

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 3,333,900 shares per day over the past 30 days. American Realty Capital Properties has a market cap of $2.5 billion and is part of the real estate industry. Shares are up 24.2% year to date as of the close of trading on Friday.

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 48.91%, 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 -63.29%.

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.

Other helpful dividend tools from TheStreet:

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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