3 Sell-Rated Dividend Stocks: NTI, ARR, HTS

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."

Northern Tier Energy

Dividend Yield: 11.30%

Northern Tier Energy (NYSE: NTI) shares currently have a dividend yield of 11.30%.

Northern Tier Energy LP, an independent downstream energy company, is engaged in refining, retail, and pipeline operations in the United States. It operates through two segments, Refining and Retail. The company has a P/E ratio of 13.71.

The average volume for Northern Tier Energy has been 502,600 shares per day over the past 30 days. Northern Tier Energy has a market cap of $2.5 billion and is part of the energy industry. Shares are up 9.3% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Northern Tier Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and poor profit margins.

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 against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 40.1% when compared to the same quarter one year ago, falling from $119.40 million to $71.50 million.
  • The gross profit margin for NORTHERN TIER ENERGY LP is currently extremely low, coming in at 9.79%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.68% trails that of the industry average.
  • 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. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NORTHERN TIER ENERGY LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
  • NORTHERN TIER ENERGY LP's earnings per share declined by 40.8% 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, NORTHERN TIER ENERGY LP increased its bottom line by earning $2.52 versus $2.14 in the prior year. This year, the market expects an improvement in earnings ($3.51 versus $2.52).

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

ARMOUR Residential REIT

Dividend Yield: 13.90%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 13.90%.

ARMOUR Residential REIT, Inc. invests in and manages a portfolio of residential mortgage backed securities in the United States. The company is managed by ARMOUR Residential Management LLC.

The average volume for ARMOUR Residential REIT has been 3,411,700 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 7% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates ARMOUR Residential REIT as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, 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 119.3% when compared to the same quarter one year ago, falling from $102.29 million to -$19.78 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 Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $76.69 million or 19.24% 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.
  • The share price of ARMOUR RESIDENTIAL REIT INC has not done very well: it is down 7.27% 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.
  • ARMOUR RESIDENTIAL REIT INC 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, ARMOUR RESIDENTIAL REIT INC swung to a loss, reporting -$0.53 versus $0.97 in the prior year. This year, the market expects an improvement in earnings ($0.62 versus -$0.53).

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

Hatteras Financial

Dividend Yield: 10.30%

Hatteras Financial (NYSE: HTS) shares currently have a dividend yield of 10.30%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States.

The average volume for Hatteras Financial has been 935,100 shares per day over the past 30 days. Hatteras Financial has a market cap of $1.9 billion and is part of the real estate industry. Shares are up 18.6% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Hatteras Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, 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 75.0% when compared to the same quarter one year ago, falling from $67.24 million to $16.80 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 Real Estate Investment Trusts (REITs) industry and the overall market, HATTERAS FINANCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $99.45 million or 8.25% 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.
  • The share price of HATTERAS FINANCIAL CORP has not done very well: it is down 20.13% 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.
  • HATTERAS FINANCIAL CORP 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, HATTERAS FINANCIAL CORP swung to a loss, reporting -$1.60 versus $3.65 in the prior year. This year, the market expects an improvement in earnings ($1.99 versus -$1.60).

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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