What To Sell: 3 Sell-Rated Dividend Stocks ARCX, IRT, 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."

Arc Logistics Partners

Dividend Yield: 8.40%

Arc Logistics Partners (NYSE: ARCX) shares currently have a dividend yield of 8.40%.

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 6,900 shares per day over the past 30 days. Arc Logistics Partners has a market cap of $133.4 million and is part of the energy industry. Shares are up 12.5% year-to-date as of the close of trading on Monday.

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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 18.59% 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 ($0.63 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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Independence Realty

Dividend Yield: 8.00%

Independence Realty (AMEX: IRT) shares currently have a dividend yield of 8.00%.

Independence Realty Trust, Inc is an equity real estate investment trust launched by RAIT Financial Trust. It is managed by Independence Realty Advisors, LLC. The fund invests in the real estate markets of the United States. It makes investments in apartment properties to create its portfolio.

The average volume for Independence Realty has been 135,000 shares per day over the past 30 days. Independence Realty has a market cap of $287.1 million and is part of the real estate industry. Shares are down 3.3% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Independence Realty as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 107.9% when compared to the same quarter one year ago, falling from $2.94 million to -$0.23 million.
  • The gross profit margin for INDEPENDENCE REALTY TRUST is rather low; currently it is at 17.42%. Regardless of IRT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, IRT's net profit margin of -1.07% significantly underperformed when compared to the industry average.
  • In its most recent trading session, IRT 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.
  • INDEPENDENCE REALTY TRUST 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, INDEPENDENCE REALTY TRUST increased its bottom line by earning $0.19 versus $0.06 in the prior year. For the next year, the market is expecting a contraction of 126.3% in earnings (-$0.05 versus $0.19).
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, INDEPENDENCE REALTY TRUST's return on equity significantly trails that of both the industry average and the S&P 500.

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Seadrill Partners

Dividend Yield: 15.50%

Seadrill Partners (NYSE: SDLP) shares currently have a dividend yield of 15.50%.

Seadrill Partners LLC owns, operates, and acquires offshore drilling units. The company primarily serves various oil and gas companies. As of March 31, 2015, its fleet consisted of four semi-submersible drilling rigs, three drillships, and three tender rigs. The company has a P/E ratio of 6.79.

The average volume for Seadrill Partners has been 426,200 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 12.6% year-to-date as of the close of trading on Monday.

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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 weak operating cash flow, generally disappointing historical performance in the stock itself, generally high debt management risk, disappointing return on equity and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • Net operating cash flow has decreased to $169.10 million or 45.52% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 52.63%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 28.00% 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.
  • 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. Even though the debt-to-equity ratio is weak, SDLP's quick ratio is somewhat strong at 1.05, demonstrating the ability to handle 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 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.
  • SEADRILL PARTNERS LLC's earnings per share declined by 28.0% 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 $1.72 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $1.72).

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