What To Sell: 3 Sell-Rated Dividend Stocks LGCY, ISH, SDLP

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

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."

Legacy Reserves

Dividend Yield: 10.70%

Legacy Reserves (NASDAQ: LGCY) shares currently have a dividend yield of 10.70%.

Legacy Reserves LP owns and operates oil and natural gas properties in the United States.

The average volume for Legacy Reserves has been 599,400 shares per day over the past 30 days. Legacy Reserves has a market cap of $905.9 million and is part of the energy industry. Shares are up 14.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Legacy Reserves as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 606.8% when compared to the same quarter one year ago, falling from -$46.90 million to -$331.50 million.
  • The debt-to-equity ratio of 1.47 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, LGCY has a quick ratio of 0.68, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • 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, LEGACY RESERVES LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $32.61 million or 17.72% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, LEGACY RESERVES LP has marginally lower results.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 47.53%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 502.43% 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.

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International Shipholding

Dividend Yield: 8.40%

International Shipholding (NYSE: ISH) shares currently have a dividend yield of 8.40%.

International Shipholding Corporation, through its subsidiaries, provides maritime transportation services to commercial and governmental customers primarily under the medium to long-term time charters or contracts of affreightment in the United States and internationally.

The average volume for International Shipholding has been 21,700 shares per day over the past 30 days. International Shipholding has a market cap of $86.7 million and is part of the transportation industry. Shares are down 20.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates International Shipholding as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, 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 Marine industry. The net income has significantly decreased by 379.9% when compared to the same quarter one year ago, falling from $17.24 million to -$48.25 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 Marine industry and the overall market, INTL SHIPHOLDING CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for INTL SHIPHOLDING CORP is rather low; currently it is at 19.58%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -67.98% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 58.56%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 411.46% 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.
  • INTL SHIPHOLDING 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. 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, INTL SHIPHOLDING CORP swung to a loss, reporting -$8.21 versus $2.08 in the prior year. This year, the market expects an improvement in earnings (-$0.43 versus -$8.21).

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Seadrill Partners

Dividend Yield: 15.40%

Seadrill Partners (NYSE: SDLP) shares currently have a dividend yield of 15.40%.

Seadrill Partners LLC owns, operates, and acquires offshore drilling units. The company operates semi-submersible drilling rigs, tender rings, and drill ships. It primarily serves various oil and gas companies. The company was founded in 2012 and is headquartered in London, the United Kingdom. The company has a P/E ratio of 6.84.

The average volume for Seadrill Partners has been 441,100 shares per day over the past 30 days. Seadrill Partners has a market cap of $1.1 billion and is part of the energy industry. Shares are down 9.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Seadrill Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow, 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 debt-to-equity ratio is very high at 3.93 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SDLP maintains a poor quick ratio of 0.88, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has decreased to $169.50 million or 45.39% 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.
  • 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 Energy Equipment & Services industry and the overall market on the basis of return on equity, SEADRILL PARTNERS LLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Looking at the price performance of SDLP's shares over the past 12 months, there is not much good news to report: the stock is down 56.76%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than 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.
  • SEADRILL PARTNERS LLC's earnings per share declined by 20.0% in the most recent quarter compared to 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, SEADRILL PARTNERS LLC reported lower earnings of $1.76 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $1.76).

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