What To Sell: 3 Sell-Rated Dividend Stocks ZFC, ATAX, EROC

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 which could 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."

ZAIS Financial

Dividend Yield: 9.20%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.20%.

ZAIS Financial Corp., through its subsidiary, ZAIS Financial Partners, L.P., invests, finances, and manages various residential mortgage assets, real estate-related securities, and financial assets. The company has a P/E ratio of 18.89.

The average volume for ZAIS Financial has been 33,300 shares per day over the past 30 days. ZAIS Financial has a market cap of $138.5 million and is part of the real estate industry. Shares are up 7.5% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates ZAIS Financial as a sell. The area that we feel has been the company's primary weakness has been its generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • ZFC has underperformed the S&P 500 Index, declining 15.36% from its price level of one year ago.
  • When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ZAIS FINANCIAL CORP's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for ZAIS FINANCIAL CORP is rather high; currently it is at 69.05%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ZFC's net profit margin of 91.90% significantly outperformed against the industry.
  • ZAIS FINANCIAL CORP 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, ZAIS FINANCIAL CORP increased its bottom line by earning $0.81 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($1.75 versus $0.81).

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

America First Multifamily Investors

Dividend Yield: 8.30%

America First Multifamily Investors (NASDAQ: ATAX) shares currently have a dividend yield of 8.30%.

America First Multifamily Investors, L.P. acquires, holds, sells, and deals in a portfolio of federally tax-exempt mortgage revenue bonds that have been issued to provide construction and/or permanent financing of multifamily residential apartments. The company has a P/E ratio of 18.84.

The average volume for America First Multifamily Investors has been 351,500 shares per day over the past 30 days. America First Multifamily Investors has a market cap of $356.1 million and is part of the real estate industry. Shares are down 4.1% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates America First Multifamily Investors as a sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • ATAX has underperformed the S&P 500 Index, declining 16.32% from its price level of one year ago. 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.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Thrifts & Mortgage Finance industry average, but is greater than that of the S&P 500. The net income increased by 54.2% when compared to the same quarter one year prior, rising from $2.21 million to $3.41 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Thrifts & Mortgage Finance industry and the overall market on the basis of return on equity, AMERICA FIRST MULTIFAMILY-LP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The gross profit margin for AMERICA FIRST MULTIFAMILY-LP is currently very high, coming in at 73.27%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 34.94% is above that of the industry average.
  • Net operating cash flow has significantly increased by 1007.23% to $4.76 million when compared to the same quarter last year. In addition, AMERICA FIRST MULTIFAMILY-LP has also vastly surpassed the industry average cash flow growth rate of 762.96%.

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

Eagle Rock Energy Partners

Dividend Yield: 11.20%

Eagle Rock Energy Partners (NASDAQ: EROC) shares currently have a dividend yield of 11.20%.

Eagle Rock Energy Partners, L.P., together with its subsidiaries, engages in gathering, compressing, treating, processing, transporting, marketing, and trading natural gas, as well as fractionating and transporting natural gas liquids (NGL).

The average volume for Eagle Rock Energy Partners has been 1,072,400 shares per day over the past 30 days. Eagle Rock Energy Partners has a market cap of $852.8 million and is part of the energy industry. Shares are down 11.9% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates Eagle Rock Energy Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 206.2% when compared to the same quarter one year ago, falling from -$55.16 million to -$168.93 million.
  • The debt-to-equity ratio is very high at 2.18 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, EROC has a quick ratio of 0.69, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • 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, EAGLE ROCK ENERGY PARTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 50.53%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 179.48% 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.
  • EAGLE ROCK ENERGY PARTNRS LP 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. 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, EAGLE ROCK ENERGY PARTNRS LP reported poor results of -$1.81 versus -$1.11 in the prior year. This year, the market expects an improvement in earnings ($0.09 versus -$1.81).

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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