3 Sell-Rated Dividend Stocks: HLSS, OAK, ERF

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: 7.30%

Home Loan Servicing Solutions (NASDAQ: HLSS) shares currently have a dividend yield of 7.30%.

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 13.60.

The average volume for Home Loan Servicing Solutions has been 574,200 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 21.6% year to date as of the close of trading on Wednesday.

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. Regardless of the strong results of the gross profit margin, the net profit margin of 54.98% trails 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 -24.36%.
  • This stock has increased by 73.38% 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).

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Oaktree Capital Group

Dividend Yield: 11.20%

Oaktree Capital Group (NYSE: OAK) shares currently have a dividend yield of 11.20%.

Oaktree Capital Group, LLC operates as a global investment management firm that focuses on alternative markets. The company has a P/E ratio of 10.30.

The average volume for Oaktree Capital Group has been 349,800 shares per day over the past 30 days. Oaktree Capital Group has a market cap of $1.5 billion and is part of the financial services industry. Shares are up 9.9% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Oaktree Capital Group as a sell. The area that we feel has been the company's primary weakness has been its declining revenues.

Highlights from the ratings report include:
  • OAK, with its decline in revenue, underperformed when compared the industry average of 6.3%. Since the same quarter one year prior, revenues fell by 20.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • 40.60% is the gross profit margin for OAKTREE CAPITAL GROUP LLC 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 12.48% trails the industry average.
  • Net operating cash flow has increased to $2,257.11 million or 11.23% when compared to the same quarter last year. In addition, OAKTREE CAPITAL GROUP LLC has also vastly surpassed the industry average cash flow growth rate of -343.15%.
  • 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, OAKTREE CAPITAL GROUP LLC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • This stock has increased by 37.76% 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Enerplus

Dividend Yield: 7.10%

Enerplus (NYSE: ERF) shares currently have a dividend yield of 7.10%.

Enerplus Corporation, together with subsidiaries, engages in the exploration and development of crude oil and natural gas in the United States and Canada.

The average volume for Enerplus has been 956,400 shares per day over the past 30 days. Enerplus has a market cap of $3.1 billion and is part of the energy industry. Shares are up 15% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Enerplus 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 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.
  • 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.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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 current debt-to-equity ratio, 0.37, 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.
  • The gross profit margin for ENERPLUS CORP is rather high; currently it is at 67.40%. 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 -1.92% is in-line with the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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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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