What To Sell: 3 Sell-Rated Dividend Stocks WMC, PWE, IVR

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."

Western Asset Mortgage Capital

Dividend Yield: 18.00%

Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 18.00%.

Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The company has a P/E ratio of 5.10.

The average volume for Western Asset Mortgage Capital has been 656,100 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $619.5 million and is part of the real estate industry. Shares are down 0.9% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Western Asset Mortgage Capital as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to $11.51 million or 77.93% 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.
  • WMC has underperformed the S&P 500 Index, declining 7.18% 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 gross profit margin for WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 93.39%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, WMC's net profit margin of -14.37% significantly underperformed when compared to the industry average.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, WESTERN ASSET MTG CAPITAL CP's return on equity significantly trails that of both the industry average and the S&P 500.
  • WESTERN ASSET MTG CAPITAL CP 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, WESTERN ASSET MTG CAPITAL CP swung to a loss, reporting -$1.18 versus $3.76 in the prior year. This year, the market expects an improvement in earnings ($2.15 versus -$1.18).

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: 7.10%

Penn West Petroleum (NYSE: PWE) shares currently have a dividend yield of 7.10%.

Penn West Petroleum Ltd., an exploration and production company, acquires, explores, develops, exploits, and holds interests in petroleum and natural gas properties and related assets in western Canada.

The average volume for Penn West Petroleum has been 1,722,600 shares per day over the past 30 days. Penn West Petroleum has a market cap of $3.6 billion and is part of the energy industry. Shares are down 11.8% year-to-date as of the close of trading on Tuesday.

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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, weak operating cash flow, feeble growth in its earnings per share and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • 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, PENN WEST PETROLEUM LTD'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 $232.00 million or 9.37% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, PENN WEST PETROLEUM LTD has marginally lower results.
  • PENN WEST PETROLEUM LTD reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PENN WEST PETROLEUM LTD swung to a loss, reporting -$1.71 versus $0.37 in the prior year.
  • PWE'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 38.09%, which is also worse than the performance of the S&P 500 Index. 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.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.1%. Since the same quarter one year prior, revenues slightly dropped by 0.4%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.

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

Invesco Mortgage Capital

Dividend Yield: 11.50%

Invesco Mortgage Capital (NYSE: IVR) shares currently have a dividend yield of 11.50%.

Invesco Mortgage Capital Inc., a real estate investment trust, focuses on investing in, financing, and managing residential and commercial mortgage-backed securities and mortgage loans. The company invests in residential mortgage-backed securities for which a U.S.

The average volume for Invesco Mortgage Capital has been 990,800 shares per day over the past 30 days. Invesco Mortgage Capital has a market cap of $2.1 billion and is part of the real estate industry. Shares are up 17.7% year-to-date as of the close of trading on Tuesday.

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

TheStreet Ratings rates Invesco Mortgage Capital as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity 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 164.5% when compared to the same quarter one year ago, falling from $141.56 million to -$91.34 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, INVESCO MORTGAGE CAPITAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • INVESCO MORTGAGE CAPITAL 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, INVESCO MORTGAGE CAPITAL INC reported lower earnings of $0.90 versus $2.89 in the prior year. This year, the market expects an improvement in earnings ($1.99 versus $0.90).
  • 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.
  • The gross profit margin for INVESCO MORTGAGE CAPITAL INC is currently very high, coming in at 92.70%. 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 -51.21% 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.

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