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: 9.10%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.10%.

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 4.26.

The average volume for ZAIS Financial has been 18,600 shares per day over the past 30 days. ZAIS Financial has a market cap of $139.5 million and is part of the real estate industry. Shares are up 1.3% year-to-date as of the close of trading on Friday.

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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 ($1.27 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.
  • Net operating cash flow has significantly increased by 147.05% to $4.16 million when compared to the same quarter last year. In addition, ZAIS FINANCIAL CORP has also vastly surpassed the industry average cash flow growth rate of -71.43%.

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Five Oaks Investment

Dividend Yield: 13.70%

Five Oaks Investment (NYSE: OAKS) shares currently have a dividend yield of 13.70%.

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 4.82.

The average volume for Five Oaks Investment has been 106,200 shares per day over the past 30 days. Five Oaks Investment has a market cap of $161.2 million and is part of the real estate industry. Shares are up 0.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Five Oaks Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself and weak operating cash flow.

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. 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.
  • Net operating cash flow has declined marginally to $4.93 million or 9.54% when compared to the same quarter last year. Despite a decrease in cash flow of 9.54%, FIVE OAKS INVESTMENT CORP is still significantly exceeding the industry average of -71.43%.
  • 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.

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Sprague Resources

Dividend Yield: 7.70%

Sprague Resources (NYSE: SRLP) shares currently have a dividend yield of 7.70%.

Sprague Resources LP is engaged in the purchase, storage, distribution, and sale of refined petroleum products and natural gas in the United States. The company operates through four segments: Refined Products, Natural Gas, Materials Handling, and Other Operations.

The average volume for Sprague Resources has been 41,500 shares per day over the past 30 days. Sprague Resources has a market cap of $241.5 million and is part of the energy industry. Shares are up 3% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Sprague Resources as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, poor profit margins, 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 against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 67.2% when compared to the same quarter one year ago, falling from -$6.41 million to -$10.72 million.
  • The debt-to-equity ratio is very high at 5.92 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.38, which clearly demonstrates the inability to cover short-term cash needs.
  • The gross profit margin for SPRAGUE RESOURCES LP is currently extremely low, coming in at 1.19%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.47% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$134.23 million or 525.04% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • SPRAGUE RESOURCES 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SPRAGUE RESOURCES LP reported poor results of -$1.25 versus -$0.59 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus -$1.25).

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