What To Sell: 3 Sell-Rated Dividend Stocks ZFC, LPHI, OAKS

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: 8.90%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 8.90%.

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 3.99.

The average volume for ZAIS Financial has been 52,900 shares per day over the past 30 days. ZAIS Financial has a market cap of $142.8 million and is part of the real estate industry. Shares are up 12.5% year-to-date as of the close of trading on Wednesday.

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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 unimpressive growth in net income over time.

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 69.0% when compared to the same quarter one year ago, falling from $3.72 million to $1.15 million.
  • In its most recent trading session, ZFC 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. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
  • ZAIS FINANCIAL 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 reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. 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 ($1.31 versus $0.81).
  • The gross profit margin for ZAIS FINANCIAL CORP is rather high; currently it is at 68.88%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ZFC's net profit margin of 10.45% significantly trails the industry average.
  • 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, ZAIS FINANCIAL CORP's return on equity exceeds that of both the industry average and the S&P 500.

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

Life Partners Holdings

Dividend Yield: 15.60%

Life Partners Holdings (NASDAQ: LPHI) shares currently have a dividend yield of 15.60%.

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 32,700 shares per day over the past 30 days. Life Partners Holdings has a market cap of $23.9 million and is part of the insurance industry. Shares are down 30.9% year-to-date as of the close of trading on Tuesday.

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 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 302.1% when compared to the same quarter one year ago, falling from -$1.79 million to -$7.21 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 31.50%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 290.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • 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 increased to -$1.63 million or 27.77% when compared to the same quarter last year. Despite an increase in cash flow, LIFE PARTNERS HOLDINGS INC's cash flow growth rate is still lower than the industry average growth rate of 57.47%.

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

Five Oaks Investment

Dividend Yield: 13.60%

Five Oaks Investment (NYSE: OAKS) shares currently have a dividend yield of 13.60%.

Five Oaks Investment Corp. focuses on investing, financing, and managing agency and non-agency residential mortgage-backed securities (RMBS), residential mortgage loans, multi-family MBS, and other mortgage-related investments. It would elect to be taxed as a real estate investment trust. The company has a P/E ratio of 4.85.

The average volume for Five Oaks Investment has been 114,600 shares per day over the past 30 days. Five Oaks Investment has a market cap of $161.9 million and is part of the real estate industry. Shares are up 5.5% year-to-date as of the close of trading on Tuesday.

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 Five Oaks Investment 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, OAKS 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. This company's share value has not moved any higher or lower since its value 12 months ago, and we feel the risks associated with investing in this company will outweigh any potential future gains.
  • When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, FIVE OAKS INVESTMENT CORP's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for FIVE OAKS INVESTMENT CORP is rather high; currently it is at 65.49%. Regardless of OAKS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, OAKS's net profit margin of 60.89% significantly outperformed against the industry.
  • FIVE OAKS INVESTMENT CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.33 versus $0.43).

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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