What To Sell: 3 Sell-Rated Dividend Stocks WMC, ARP, ARR

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: 17.60%

Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 17.60%.

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 5.22.

The average volume for Western Asset Mortgage Capital has been 668,000 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $634.1 million and is part of the real estate industry. Shares are up 2.1% 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 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:
  • In its most recent trading session, WMC 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.
  • 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 -$1.20 versus $3.76 in the prior year. This year, the market expects an improvement in earnings ($2.64 versus -$1.20).
  • 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.
  • Net operating cash flow has increased to $47.65 million or 14.98% when compared to the same quarter last year. Despite an increase in cash flow, WESTERN ASSET MTG CAPITAL CP's average is still marginally south of the industry average growth rate of 17.20%.
  • 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.

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

Atlas Resource Partners

Dividend Yield: 11.70%

Atlas Resource Partners (NYSE: ARP) shares currently have a dividend yield of 11.70%.

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 541,100 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 1.8% 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 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.

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 2,933,100 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 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 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 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.
  • 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).
  • 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. 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.

Other helpful dividend tools from TheStreet:
null

If you liked this article you might like

Is It Time to Buy LendingClub?

Is It Time to Buy LendingClub?

3 Sell-Rated Dividend Stocks: WMC, ASC, STON

3 Sell-Rated Dividend Stocks: WMC, ASC, STON

What To Sell: 3 Sell-Rated Dividend Stocks WMC, NAUH, SPP

What To Sell: 3 Sell-Rated Dividend Stocks WMC, NAUH, SPP

What To Sell: 3 Sell-Rated Dividend Stocks WMC, STON, IRT

What To Sell: 3 Sell-Rated Dividend Stocks WMC, STON, IRT

3 Sell-Rated Dividend Stocks: WMC, NAUH, RIGP

3 Sell-Rated Dividend Stocks: WMC, NAUH, RIGP