What To Sell: 3 Sell-Rated Dividend Stocks EQR, PWE, XCO

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."

Equity Residential

Dividend Yield: 5.00%

Equity Residential (NYSE: EQR) shares currently have a dividend yield of 5.00%.

Equity Residential, a real estate investment trust (REIT), engages in the acquisition, development, and management of multifamily properties in the United States. The company has a P/E ratio of 403.85.

The average volume for Equity Residential has been 1,911,000 shares per day over the past 30 days. Equity Residential has a market cap of $18.9 billion and is part of the real estate industry. Shares are down 8.2% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Equity Residential as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, EQUITY RESIDENTIAL's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for EQUITY RESIDENTIAL is rather low; currently it is at 19.20%. It has decreased significantly from the same period last year. Despite the weak results of the gross profit margin, the net profit margin of 59.98% has significantly outperformed against the industry average.
  • The share price of EQUITY RESIDENTIAL has not done very well: it is down 5.28% 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.
  • EQUITY RESIDENTIAL has experienced 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, EQUITY RESIDENTIAL increased its bottom line by earning $0.57 versus $0.15 in the prior year. This year, the market expects an improvement in earnings ($4.33 versus $0.57).
  • 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 66.8% when compared to the same quarter one year prior, rising from $226.14 million to $377.19 million.

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

Penn West Petroleum

Dividend Yield: 6.30%

Penn West Petroleum (NYSE: PWE) shares currently have a dividend yield of 6.30%.

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 average volume for Penn West Petroleum has been 2,418,300 shares per day over the past 30 days. Penn West Petroleum has a market cap of $4.1 billion and is part of the energy industry. Shares are down 21.7% year-to-date as of the close of trading on Thursday.

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

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. 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 has underperformed the S&P 500 Index, declining 23.81% from its price level of one year ago. 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.
  • PENN WEST PETROLEUM LTD 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, PENN WEST PETROLEUM LTD reported lower earnings of $0.37 versus $1.37 in the prior year.
  • The current debt-to-equity ratio, 0.35, 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 0.48 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The gross profit margin for PENN WEST PETROLEUM LTD is rather high; currently it is at 60.85%. 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 4.57% trails 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.

EXCO Resources

Dividend Yield: 4.10%

EXCO Resources (NYSE: XCO) shares currently have a dividend yield of 4.10%.

EXCO Resources, Inc., an independent oil and natural gas company, engages in the acquisition, exploration, exploitation, development and production of onshore U.S. oil and natural gas properties with a focus on shale resource plays.

The average volume for EXCO Resources has been 4,337,300 shares per day over the past 30 days. EXCO Resources has a market cap of $1.1 billion and is part of the energy industry. Shares are down 26.3% year-to-date as of the close of trading on Thursday.

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

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 7.66 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.44, which clearly demonstrates the inability to cover short-term cash needs.
  • Net operating cash flow has significantly decreased to $52.14 million or 61.17% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • XCO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 35.92%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, EXCO RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • EXCO RESOURCES INC reported significant earnings per share improvement 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, EXCO RESOURCES INC swung to a loss, reporting -$6.51 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($0.36 versus -$6.51).

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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