What To Sell: 3 Sell-Rated Dividend Stocks ARP, MTGE, 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."

Atlas Resource Partners

Dividend Yield: 11.80%

Atlas Resource Partners (NYSE: ARP) shares currently have a dividend yield of 11.80%.

Atlas Resource Partners, L.P. operates as an independent developer and producer of natural gas, crude oil, and natural gas liquids in the United States. The company operates in three segments: Gas and Oil Production, Well Construction and Completion, and Other Partnership Management.

The average volume for Atlas Resource Partners has been 556,300 shares per day over the past 30 days. Atlas Resource Partners has a market cap of $1.6 billion and is part of the energy industry. Shares are down 3.4% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Atlas Resource Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally high debt management risk, 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 232.3% when compared to the same quarter one year ago, falling from -$6.18 million to -$20.52 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 Oil, Gas & Consumable Fuels industry and the overall market, ATLAS RESOURCE PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • ARP's debt-to-equity ratio of 0.93 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.39 is very low and demonstrates very weak liquidity.
  • In its most recent trading session, ARP 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.
  • ATLAS RESOURCE PARTNERS 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ATLAS RESOURCE PARTNERS LP reported poor results of -$1.88 versus -$1.63 in the prior year. This year, the market expects an improvement in earnings (-$0.37 versus -$1.88).

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

American Capital Mortgage Investment

Dividend Yield: 12.70%

American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 12.70%.

American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 8.08.

The average volume for American Capital Mortgage Investment has been 441,900 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $1.0 billion and is part of the real estate industry. Shares are up 16.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates American Capital Mortgage Investment as a sell. Among the areas we feel are negative, one of the most important has been weak operating cash flow.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to $40.11 million or 71.85% 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 return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL MTG INV CP's return on equity is below that of both the industry average and the S&P 500.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in 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.
  • AMERICAN CAPITAL MTG INV 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, AMERICAN CAPITAL MTG INV CP swung to a loss, reporting -$1.58 versus $8.40 in the prior year. This year, the market expects an improvement in earnings ($2.64 versus -$1.58).
  • The gross profit margin for AMERICAN CAPITAL MTG INV CP is currently very high, coming in at 86.75%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MTGE's net profit margin of 54.10% significantly outperformed against the industry.

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 926,300 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 17.9% year-to-date as of the close of trading on Friday.

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, weak operating cash flow 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.
  • Net operating cash flow has decreased to $97.55 million or 29.25% 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.
  • 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 ($1.98 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.

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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