3 Sell-Rated Dividend Stocks: PWE, LNCO, XCO

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."

Penn West Petroleum

Dividend Yield: 11.90%

Penn West Petroleum (NYSE: PWE) shares currently have a dividend yield of 11.90%.

Penn West Petroleum Ltd., an exploration and production company, acquires, explores, develops, exploits, and holds interests in petroleum and natural gas properties and related assets in western Canada.

The average volume for Penn West Petroleum has been 3,590,400 shares per day over the past 30 days. Penn West Petroleum has a market cap of $2.1 billion and is part of the energy industry. Shares are down 47.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Penn West Petroleum as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • PENN WEST PETROLEUM LTD 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 suffered a declining pattern earnings per share over the past two years. During the past fiscal year, PENN WEST PETROLEUM LTD swung to a loss, reporting -$1.77 versus $0.37 in the prior year.
  • 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 144.1% when compared to the same quarter one year ago, falling from $34.00 million to -$15.00 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, PENN WEST PETROLEUM LTD'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 51.50%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 142.85% 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.
  • PWE, with its decline in revenue, slightly underperformed the industry average of 6.4%. Since the same quarter one year prior, revenues fell by 14.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

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: 14.20%

LinnCo (NASDAQ: LNCO) shares currently have a dividend yield of 14.20%.

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 2,206,400 shares per day over the past 30 days. LinnCo has a market cap of $2.6 billion and is part of the energy industry. Shares are down 33.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates LinnCo 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 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 243.2% when compared to the same quarter one year ago, falling from $30.13 million to -$43.14 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 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 34.11%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 139.08% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • LINNCO LLC 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, LINNCO LLC swung to a loss, reporting -$17.73 versus $0.60 in the prior year. This year, the market expects an improvement in earnings ($0.95 versus -$17.73).
  • LNCO, with its very weak revenue results, has greatly underperformed against the industry average of 6.4%. Since the same quarter one year prior, revenues plummeted by 215.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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

EXCO Resources

Dividend Yield: 6.10%

EXCO Resources (NYSE: XCO) shares currently have a dividend yield of 6.10%.

EXCO Resources, Inc., an independent oil and natural gas company, is engaged in the acquisition, exploration, exploitation, development, and production of onshore oil and natural gas properties with a focus on shale resource plays in the United States.

The average volume for EXCO Resources has been 4,536,400 shares per day over the past 30 days. EXCO Resources has a market cap of $900.7 million and is part of the energy industry. Shares are down 31.4% year-to-date as of the close of trading on Thursday.

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 EXCO Resources as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 3.63 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, XCO has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • XCO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 39.58%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, EXCO RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • EXCO RESOURCES INC 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, EXCO RESOURCES INC turned its bottom line around by earning $0.11 versus -$6.51 in the prior year. For the next year, the market is expecting a contraction of 18.2% in earnings ($0.09 versus $0.11).
  • XCO, with its decline in revenue, slightly underperformed the industry average of 6.4%. Since the same quarter one year prior, revenues slightly dropped by 8.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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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