What To Sell: 3 Sell-Rated Dividend Stocks ZFC, OAKS, GOOD

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: 9.70%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.70%.

Zais Financial Corp. invests in, finances, and manages performing and re-performing residential mortgage loans. The company also invests in, finances, and manages residential mortgage-backed securities (RMBS) that are not issued or guaranteed by a federally chartered corporation. The company has a P/E ratio of 18.60.

The average volume for ZAIS Financial has been 60,200 shares per day over the past 30 days. ZAIS Financial has a market cap of $131.0 million and is part of the real estate industry. Shares are up 2.1% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates ZAIS Financial 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:
  • ZFC has underperformed the S&P 500 Index, declining 5.66% 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.
  • 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 56.82%. 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 23.42% trails the industry average.
  • Net operating cash flow has significantly increased by 1192.24% to $1.67 million when compared to the same quarter last year. In addition, ZAIS FINANCIAL CORP has also vastly surpassed the industry average cash flow growth rate of -58.18%.

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

Five Oaks Investment

Dividend Yield: 13.40%

Five Oaks Investment (NYSE: OAKS) shares currently have a dividend yield of 13.40%.

Five Oaks Investment Corp. focuses on investing, financing, and managing agency and non-agency residential mortgage-backed securities (RMBS), residential mortgage loans, multi-family MBS, and other mortgage-related investments. It would elect to be taxed as a real estate investment trust.

The average volume for Five Oaks Investment has been 157,600 shares per day over the past 30 days. Five Oaks Investment has a market cap of $119.6 million and is part of the real estate industry. Shares are up 7.4% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Five Oaks Investment as a sell. Among the areas we feel are negative, one of the most important has been generally deteriorating net income.

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 266.3% when compared to the same quarter one year ago, falling from $1.53 million to -$2.54 million.
  • FIVE OAKS INVESTMENT 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. This year, the market expects an improvement in earnings ($0.79 versus $0.43).
  • The share price of FIVE OAKS INVESTMENT CORP has not done very well: it is down 14.07% 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.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, FIVE OAKS INVESTMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for FIVE OAKS INVESTMENT CORP is rather high; currently it is at 59.11%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -65.02% 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.

Gladstone Commercial

Dividend Yield: 8.50%

Gladstone Commercial (NASDAQ: GOOD) shares currently have a dividend yield of 8.50%.

Gladstone Commercial Corporation operates as a real estate investment trust (REIT) in the United States. It engages in investing in and owning net leased industrial and commercial real properties, and making long-term industrial and commercial mortgage loans.

The average volume for Gladstone Commercial has been 120,600 shares per day over the past 30 days. Gladstone Commercial has a market cap of $311.4 million and is part of the real estate industry. Shares are down 2.2% year-to-date as of the close of trading on Tuesday.

TheStreet Ratings rates Gladstone Commercial 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 and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • GLADSTONE COMMERCIAL 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, GLADSTONE COMMERCIAL CORP reported poor results of -$0.22 versus -$0.05 in the prior year. For the next year, the market is expecting a contraction of 340.9% in earnings (-$0.97 versus -$0.22).
  • 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 3221.0% when compared to the same quarter one year ago, falling from $0.43 million to -$13.51 million.
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, GLADSTONE COMMERCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The share price of GLADSTONE COMMERCIAL CORP has not done very well: it is down 6.24% 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.
  • Net operating cash flow has significantly increased by 101.66% to $6.16 million when compared to the same quarter last year. In addition, GLADSTONE COMMERCIAL CORP has also vastly surpassed the industry average cash flow growth rate of -58.18%.

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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