What To Sell: 3 Sell-Rated Dividend Stocks DSWL, ARCX, OCIP

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."

Deswell Industries

Dividend Yield: 7.40%

Deswell Industries (NASDAQ: DSWL) shares currently have a dividend yield of 7.40%.

Deswell Industries, Inc. manufactures and sells injection-molded plastic parts and components, electronic products, assembling, and metallic parts for original equipment manufacturers and contract manufacturers.

The average volume for Deswell Industries has been 16,000 shares per day over the past 30 days. Deswell Industries has a market cap of $30.5 million and is part of the consumer non-durables industry. Shares are up 5.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Deswell Industries as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, DESWELL INDUSTRIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for DESWELL INDUSTRIES INC is rather low; currently it is at 15.05%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -10.45% is significantly below that of the industry average.
  • Net operating cash flow has declined marginally to -$0.22 million or 4.18% when compared to the same quarter last year. Despite a decrease in cash flow DESWELL INDUSTRIES INC is still fairing well by exceeding its industry average cash flow growth rate of -26.20%.
  • DSWL has underperformed the S&P 500 Index, declining 5.48% from its price level of one year ago. 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.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Electronic Equipment, Instruments & Components industry average, but is greater than that of the S&P 500. The net income increased by 20.3% when compared to the same quarter one year prior, going from -$1.42 million to -$1.13 million.

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Arc Logistics Partners

Dividend Yield: 8.50%

Arc Logistics Partners (NYSE: ARCX) shares currently have a dividend yield of 8.50%.

ARC Logistics Partners LP engages in the terminalling, storage, throughput, and transloading of crude oil and petroleum products.

The average volume for Arc Logistics Partners has been 7,000 shares per day over the past 30 days. Arc Logistics Partners has a market cap of $132.9 million and is part of the energy industry. Shares are up 14% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Arc Logistics Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 83.7% when compared to the same quarter one year ago, falling from $1.86 million to $0.30 million.
  • The share price of ARC LOGISTICS PARTNERS LP has not done very well: it is down 18.97% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when 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.
  • ARC LOGISTICS PARTNERS 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ARC LOGISTICS PARTNERS LP reported lower earnings of $0.06 versus $0.13 in the prior year. This year, the market expects an improvement in earnings ($0.85 versus $0.06).
  • Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARC LOGISTICS PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for ARC LOGISTICS PARTNERS LP is rather high; currently it is at 53.68%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 2.24% trails the industry average.

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OCI Partners

Dividend Yield: 7.20%

OCI Partners (NYSE: OCIP) shares currently have a dividend yield of 7.20%.

OCI Partners LP produces and sells methanol and ammonia in the United States. The company sells its products to industrial users and commercial traders for further processing or distribution. OCI GP LLC operates as the general partner of the company. The company has a P/E ratio of 12.45.

The average volume for OCI Partners has been 43,200 shares per day over the past 30 days. OCI Partners has a market cap of $1.5 billion and is part of the chemicals industry. Shares are up 15.1% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates OCI Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, weak operating cash flow, generally high debt management risk, 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 against the S&P 500 and did not exceed that of the Chemicals industry. The net income has significantly decreased by 37.2% when compared to the same quarter one year ago, falling from $49.22 million to $30.92 million.
  • Net operating cash flow has decreased to $27.38 million or 49.38% 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 debt-to-equity ratio is very high at 2.08 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, OCIP's quick ratio is somewhat strong at 1.10, demonstrating the ability to handle short-term liquidity needs.
  • The share price of OCI PARTNERS LP has not done very well: it is down 13.04% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when 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.
  • OCI PARTNERS LP's earnings per share declined by 37.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, OCI PARTNERS LP increased its bottom line by earning $1.48 versus $0.91 in the prior year. For the next year, the market is expecting a contraction of 12.2% in earnings ($1.30 versus $1.48).

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