What To Hold: 3 Hold-Rated Dividend Stocks ESV, ARCP, LNCO

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 "Hold."

Ensco

Dividend Yield: 6.00%

Ensco (NYSE: ESV) shares currently have a dividend yield of 6.00%.

Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide. The company operates through three segments: Floaters, Jackups, and Other. The company has a P/E ratio of 25.79.

The average volume for Ensco has been 2,679,800 shares per day over the past 30 days. Ensco has a market cap of $11.7 billion and is part of the energy industry. Shares are down 12.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Ensco as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • ESV's revenue growth trails the industry average of 20.5%. Since the same quarter one year prior, revenues slightly increased by 6.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $504.80 million or 14.18% when compared to the same quarter last year. Despite an increase in cash flow, ENSCO PLC's cash flow growth rate is still lower than the industry average growth rate of 27.47%.
  • The gross profit margin for ENSCO PLC is rather high; currently it is at 52.12%. Regardless of ESV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ESV's net profit margin of -97.48% significantly underperformed when compared to the industry average.
  • 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 Energy Equipment & Services industry and the overall market, ENSCO PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The share price of ENSCO PLC has not done very well: it is down 8.47% 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. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

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American Realty Capital Properties

Dividend Yield: 7.60%

American Realty Capital Properties (NASDAQ: ARCP) shares currently have a dividend yield of 7.60%.

American Realty Capital Properties, Inc. owns and acquires single tenant, freestanding commercial real estate that is net leased on a medium-term basis, primarily to investment grade credit rated and other creditworthy tenants. The company principally invests in retail and office properties.

The average volume for American Realty Capital Properties has been 11,873,400 shares per day over the past 30 days. American Realty Capital Properties has a market cap of $11.9 billion and is part of the real estate industry. Shares are up 2.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates American Realty Capital Properties as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company's profit margins have been poor overall.

Highlights from the ratings report include:
  • ARCP's very impressive revenue growth greatly exceeded the industry average of 10.3%. Since the same quarter one year prior, revenues leaped by 595.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 44.0% when compared to the same quarter one year prior, rising from -$71.96 million to -$40.33 million.
  • AMERICAN RLTY CAP PPTY INC 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 RLTY CAP PPTY INC reported poor results of -$2.34 versus -$0.47 in the prior year. This year, the market expects an improvement in earnings (-$1.18 versus -$2.34).
  • 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, AMERICAN RLTY CAP PPTY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for AMERICAN RLTY CAP PPTY INC is currently extremely low, coming in at 6.89%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, ARCP's net profit margin of -10.55% significantly underperformed when compared to 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.

LinnCo

Dividend Yield: 9.30%

LinnCo (NASDAQ: LNCO) shares currently have a dividend yield of 9.30%.

LinnCo, LLC, through its limited liability company interests in Linn Energy, LLC, focuses on the acquisition and development of oil and natural gas properties in the United States. The company was founded in 2012 and is headquartered in Houston, Texas.

The average volume for LinnCo has been 1,234,700 shares per day over the past 30 days. LinnCo has a market cap of $4.0 billion and is part of the energy industry. Shares are up 1.3% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates LinnCo as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we find that net income has been generally deteriorating over time.

Highlights from the ratings report include:
  • LNCO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 18.09, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly increased by 269.64% to $93.23 million when compared to the same quarter last year. In addition, LINNCO LLC has also vastly surpassed the industry average cash flow growth rate of -6.15%.
  • Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINNCO LLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The revenue fell significantly faster than the industry average of 2.4%. Since the same quarter one year prior, revenues fell by 43.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income has decreased by 6.9% when compared to the same quarter one year ago, dropping from -$18.22 million to -$19.48 million.

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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