What To Sell: 3 Sell-Rated Dividend Stocks ANH, MEP, STB

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."

Anworth Mortgage Asset

Dividend Yield: 11.70%

Anworth Mortgage Asset (NYSE: ANH) shares currently have a dividend yield of 11.70%.

Anworth Mortgage Asset Corporation operates as a real estate investment trust in the United States.

The average volume for Anworth Mortgage Asset has been 784,200 shares per day over the past 30 days. Anworth Mortgage Asset has a market cap of $546.2 million and is part of the real estate industry. Shares are down 2.1% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Anworth Mortgage Asset 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 221.9% when compared to the same quarter one year ago, falling from $13.37 million to -$16.31 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 Real Estate Investment Trusts (REITs) industry and the overall market, ANWORTH MTG ASSET CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The share price of ANWORTH MTG ASSET CORP has not done very well: it is down 5.38% 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. 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.
  • ANWORTH MTG ASSET 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, ANWORTH MTG ASSET CORP reported lower earnings of $0.18 versus $0.49 in the prior year. This year, the market expects an improvement in earnings ($0.54 versus $0.18).
  • The revenue fell significantly faster than the industry average of 8.5%. Since the same quarter one year prior, revenues fell by 22.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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Midcoast Energy Partners

Dividend Yield: 10.60%

Midcoast Energy Partners (NYSE: MEP) shares currently have a dividend yield of 10.60%.

Midcoast Energy Partners, L.P. engages in gathering, processing, treating, transporting, and marketing natural gas and natural gas liquids (NGL) in the United States. It operates through two segments, Gathering, Processing, and Transportation; and Logistics and Marketing. The company has a P/E ratio of 13.81.

The average volume for Midcoast Energy Partners has been 97,700 shares per day over the past 30 days. Midcoast Energy Partners has a market cap of $296.6 million and is part of the energy industry. Shares are down 4.1% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Midcoast Energy Partners as a sell. Among the areas we feel are negative, one of the most important has been poor profit margins.

Highlights from the ratings report include:
  • The gross profit margin for MIDCOAST ENERGY PARTNERS LP is currently extremely low, coming in at 12.71%. Regardless of MEP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MEP's net profit margin of 4.27% compares favorably to the industry average.
  • MIDCOAST ENERGY PARTNERS LP 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, MIDCOAST ENERGY PARTNERS LP increased its bottom line by earning $1.40 versus $0.21 in the prior year. For the next year, the market is expecting a contraction of 70.7% in earnings ($0.41 versus $1.40).
  • Despite the weak revenue results, MEP has outperformed against the industry average of 20.3%. Since the same quarter one year prior, revenues slightly dropped by 6.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that MEP's debt-to-equity ratio is low, the quick ratio, which is currently 0.52, displays a potential problem in covering short-term cash needs.
  • Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MIDCOAST ENERGY PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.

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Student Transportation

Dividend Yield: 8.40%

Student Transportation (AMEX: STB) shares currently have a dividend yield of 8.40%.

Student Transportation Inc., together with its subsidiaries, provides school bus transportation services in the United States and Canada. It offers contracted, managed, special needs transportation, direct-to-parent, and charter services. The company has a P/E ratio of 181.33.

The average volume for Student Transportation has been 138,000 shares per day over the past 30 days. Student Transportation has a market cap of $454.4 million and is part of the transportation industry. Shares are down 12.7% year-to-date as of the close of trading on Monday.

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

Highlights from the ratings report include:
  • STB has underperformed the S&P 500 Index, declining 12.94% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • 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 Road & Rail industry and the overall market, STUDENT TRANSPORTATION INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for STUDENT TRANSPORTATION INC is rather low; currently it is at 24.58%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.24% significantly trails the industry average.
  • Net operating cash flow has significantly decreased to $7.53 million or 66.28% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • STUDENT TRANSPORTATION INC reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, STUDENT TRANSPORTATION INC reported lower earnings of $0.02 versus $0.04 in the prior year.

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