3 Sell-Rated Dividend Stocks: TROX, MTGE, ECA

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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."

Tronox

Dividend Yield: 4.70%

Tronox (NYSE: TROX) shares currently have a dividend yield of 4.70%.

Tronox Limited produces and markets titanium ore and titanium dioxide in the Americas, Europe, and the Asia-Pacific. It offers titanium dioxide pigment, which is used in consumer products, such as paint, plastic, and certain specialty products. The company has a P/E ratio of 2.25.

The average volume for Tronox has been 653,700 shares per day over the past 30 days. Tronox has a market cap of $1.4 billion and is part of the chemicals industry. Shares are up 15.5% year to date as of the close of trading on Friday.

TheStreet Ratings rates Tronox as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, 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 Chemicals industry. The net income has significantly decreased by 166.0% when compared to the same quarter one year ago, falling from $86.30 million to -$57.00 million.
  • The gross profit margin for TRONOX LTD is rather low; currently it is at 24.04%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -12.12% is significantly below that of the industry average.
  • The share price of TRONOX LTD has not done very well: it is down 9.95% 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. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • TRONOX 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. 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, TRONOX LTD increased its bottom line by earning $13.61 versus $11.06 in the prior year. For the next year, the market is expecting a contraction of 101.9% in earnings (-$0.27 versus $13.61).
  • TROX's debt-to-equity ratio of 0.97 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 4.71 is very high and demonstrates very strong liquidity.

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

American Capital Mortgage Investment

Dividend Yield: 17.60%

American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 17.60%.

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 2.79.

The average volume for American Capital Mortgage Investment has been 1,526,600 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $1.1 billion and is part of the real estate industry. Shares are down 22.7% year to date as of the close of trading on Friday.

TheStreet Ratings rates American Capital Mortgage Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 224.6% when compared to the same quarter one year ago, falling from $21.32 million to -$26.57 million.
  • The share price of AMERICAN CAPITAL MTG INV CP has not done very well: it is down 24.69% 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. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • AMERICAN CAPITAL MTG INV CP 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. 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 64.2% in earnings ($3.01 versus $8.40).
  • MTGE, with its very weak revenue results, has greatly underperformed against the industry average of 12.3%. Since the same quarter one year prior, revenues plummeted by 54.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for AMERICAN CAPITAL MTG INV CP is rather high; currently it is at 53.22%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MTGE's net profit margin of -199.79% significantly underperformed when compared to 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.

Encana

Dividend Yield: 4.60%

Encana (NYSE: ECA) shares currently have a dividend yield of 4.60%.

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 4,548,800 shares per day over the past 30 days. Encana has a market cap of $12.8 billion and is part of the energy industry. Shares are down 11.9% year to date as of the close of trading on Friday.

TheStreet Ratings rates Encana 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, poor profit margins and weak operating cash flow.

Highlights from the ratings report include:
  • ENCANA 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, ENCANA CORP swung to a loss, reporting -$3.79 versus $0.15 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 3691.7% when compared to the same quarter one year ago, falling from $12.00 million to -$431.00 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 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.
  • The gross profit margin for ENCANA CORP is currently lower than what is desirable, coming in at 33.43%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -40.69% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $338.00 million or 45.21% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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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