3 Sell-Rated Dividend Stocks: ZFC, LPHI, AT

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."

ZAIS Financial

Dividend Yield: 8.50%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 8.50%.

Zais Financial Corp. invests in, finances, and manages performing and re-performing residential mortgage loans. The company also invests in, finances, and manages residential mortgage-backed securities (RMBS) that are not issued or guaranteed by a federally chartered corporation. The company has a P/E ratio of 4.20.

The average volume for ZAIS Financial has been 66,900 shares per day over the past 30 days. ZAIS Financial has a market cap of $150.5 million and is part of the real estate industry. Shares are up 19% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates ZAIS Financial 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 -$3.44 million or 201.02% 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 ZAIS FINANCIAL CORP is currently very high, coming in at 70.17%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 213.94% significantly outperformed against the industry average.
  • Compared to where it was a year ago today, 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.
  • ZAIS FINANCIAL CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ZAIS FINANCIAL CORP increased its bottom line by earning $0.81 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($1.40 versus $0.81).

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Life Partners Holdings

Dividend Yield: 9.50%

Life Partners Holdings (NASDAQ: LPHI) shares currently have a dividend yield of 9.50%.

Life Partners Holdings, Inc., through its subsidiary, Life Partners, Inc., operates in the secondary market for life insurance worldwide. It facilitates the sale of life settlements between sellers and purchasers, but does not take possession or control of the policies.

The average volume for Life Partners Holdings has been 20,200 shares per day over the past 30 days. Life Partners Holdings has a market cap of $39.2 million and is part of the insurance industry. Shares are up 18% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Life Partners Holdings as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself.

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 Diversified Financial Services industry. The net income has significantly decreased by 203.4% when compared to the same quarter one year ago, falling from $1.68 million to -$1.74 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 Diversified Financial Services industry and the overall market, LIFE PARTNERS HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • In its most recent trading session, LPHI 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.
  • LIFE PARTNERS HOLDINGS 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. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, LIFE PARTNERS HOLDINGS INC continued to lose money by earning -$0.13 versus -$0.16 in the prior year.
  • Net operating cash flow has significantly increased by 61.65% to -$1.10 million when compared to the same quarter last year. In addition, LIFE PARTNERS HOLDINGS INC has also vastly surpassed the industry average cash flow growth rate of 0.71%.

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Atlantic Power

Dividend Yield: 9.50%

Atlantic Power (NYSE: AT) shares currently have a dividend yield of 9.50%.

Atlantic Power Corporation owns and operates a fleet of power generation assets in the United States and Canada.

The average volume for Atlantic Power has been 1,246,200 shares per day over the past 30 days. Atlantic Power has a market cap of $466.0 million and is part of the utilities industry. Shares are up 13.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Atlantic Power as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and generally high debt management risk.

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 Independent Power Producers & Energy Traders industry. The net income has significantly decreased by 1870.0% when compared to the same quarter one year ago, falling from -$3.00 million to -$59.10 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 Independent Power Producers & Energy Traders industry and the overall market, ATLANTIC POWER CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is very high at 3.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, AT's quick ratio is somewhat strong at 1.37, demonstrating the ability to handle short-term liquidity needs.
  • In its most recent trading session, AT 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.
  • ATLANTIC POWER CORP 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. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, ATLANTIC POWER CORP continued to lose money by earning -$0.24 versus -$1.10 in the prior 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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