What To Sell: 3 Sell-Rated Dividend Stocks LINE, VNR, TLM

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."

Linn Energy

Dividend Yield: 9.90%

Linn Energy (NASDAQ: LINE) shares currently have a dividend yield of 9.90%.

Linn Energy, LLC, an independent oil and natural gas company, acquires and develops oil and natural gas properties in the Unites States.

The average volume for Linn Energy has been 2,100,800 shares per day over the past 30 days. Linn Energy has a market cap of $4.3 billion and is part of the energy industry. Shares are up 22.5% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Linn Energy 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, poor profit margins and weak operating cash flow.

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 297.4% when compared to the same quarter one year ago, falling from -$85.34 million to -$339.16 million.
  • The debt-to-equity ratio is very high at 2.52 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 0.49, which clearly demonstrates the inability to cover short-term cash needs.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LINN ENERGY LLC is currently extremely low, coming in at 8.13%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -37.00% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $374.70 million or 13.75% when compared to the same quarter last year. Despite a decrease in cash flow LINN ENERGY LLC is still fairing well by exceeding its industry average cash flow growth rate of -53.10%.

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Vanguard Natural Resources

Dividend Yield: 8.70%

Vanguard Natural Resources (NASDAQ: VNR) shares currently have a dividend yield of 8.70%.

Vanguard Natural Resources, LLC, through its subsidiaries, acquires and develops oil and natural gas properties in the United States.

The average volume for Vanguard Natural Resources has been 797,100 shares per day over the past 30 days. Vanguard Natural Resources has a market cap of $1.4 billion and is part of the energy industry. Shares are up 7.6% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Vanguard Natural Resources as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • VANGUARD NATURAL RESOURCES 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. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, VANGUARD NATURAL RESOURCES reported lower earnings of $0.54 versus $0.75 in the prior year. For the next year, the market is expecting a contraction of 7.4% in earnings ($0.50 versus $0.54).
  • 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 883.9% when compared to the same quarter one year ago, falling from $15.12 million to -$118.53 million.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 46.58%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1031.25% 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.
  • VNR's very impressive revenue growth greatly exceeded the industry average of 38.3%. Since the same quarter one year prior, revenues leaped by 63.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

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Talisman Energy

Dividend Yield: 5.60%

Talisman Energy (NYSE: TLM) shares currently have a dividend yield of 5.60%.

Talisman Energy Inc., an upstream oil and gas company, engages in the exploration, development, production, transportation, and marketing of crude oil, natural gas, and natural gas liquids.

The average volume for Talisman Energy has been 9,415,600 shares per day over the past 30 days. Talisman Energy has a market cap of $8.3 billion and is part of the energy industry. Shares are up 2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Talisman Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income 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 against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 58.2% when compared to the same quarter one year ago, falling from -$1,005.00 million to -$1,590.00 million.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 27.50%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 57.14% 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 return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, TALISMAN ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for TALISMAN ENERGY INC is rather high; currently it is at 54.08%. Regardless of TLM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TLM's net profit margin of -158.36% significantly underperformed when compared to the industry average.
  • TALISMAN ENERGY INC 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 not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, TALISMAN ENERGY INC continued to lose money by earning -$0.97 versus -$1.21 in the prior year.

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