3 Sell-Rated Dividend Stocks: WMC, ARR, NAT

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 5.13.

The average volume for Western Asset Mortgage Capital has been 668,200 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $622.4 million and is part of the real estate industry. Shares are up 1.1% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Western Asset Mortgage Capital 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:
  • WMC has underperformed the S&P 500 Index, declining 9.60% 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.
  • 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 ($2.64 versus -$1.18).
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, WESTERN ASSET MTG CAPITAL CP 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 WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 96.60%. Regardless of WMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WMC's net profit margin of 46.55% significantly outperformed against the industry.

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ARMOUR Residential REIT

Dividend Yield: 14.20%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 14.20%.

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 3,075,700 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 5.5% year-to-date as of the close of trading on Thursday.

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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 114.6% when compared to the same quarter one year ago, falling from $481.39 million to -$70.19 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 $89.06 million or 25.15% 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.
  • In its most recent trading session, ARR has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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 ($0.58 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.

Nordic American Tankers

Dividend Yield: 5.20%

Nordic American Tankers (NYSE: NAT) shares currently have a dividend yield of 5.20%.

Nordic American Tankers Limited, a tanker company, is engaged in acquiring and chartering double-hull tankers. As of May 31, 2014, it had a fleet of 22 Suezmax vessels. The company was founded in 1995 and is headquartered in Hamilton, Bermuda.

The average volume for Nordic American Tankers has been 1,279,500 shares per day over the past 30 days. Nordic American Tankers has a market cap of $821.4 million and is part of the transportation industry. Shares are down 5.2% year-to-date as of the close of trading on Thursday.

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 Nordic American Tankers as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and poor profit margins.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to -$5.98 million or 90.01% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The gross profit margin for NORDIC AMERICAN TANKERS LTD is currently lower than what is desirable, coming in at 32.17%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, NAT's net profit margin of -73.10% significantly underperformed when compared to the industry average.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, NORDIC AMERICAN TANKERS LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • In its most recent trading session, NAT has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
  • NORDIC AMERICAN TANKERS LTD 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, NORDIC AMERICAN TANKERS LTD reported poor results of -$1.67 versus -$1.38 in the prior year. This year, the market expects an improvement in earnings (-$0.16 versus -$1.67).

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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