3 Sell-Rated Dividend Stocks: NRZ, LNCO, HTS

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."

New Residential Investment

Dividend Yield: 10.20%

New Residential Investment (NYSE: NRZ) shares currently have a dividend yield of 10.20%.

New Residential Investment Corp., a real estate investment trust (REIT), focuses on investing in and managing residential mortgage related assets. It operates through Servicing Related Assets, Residential Securities and Loans, and Other Investments segments. The company has a P/E ratio of 7.35.

The average volume for New Residential Investment has been 2,920,600 shares per day over the past 30 days. New Residential Investment has a market cap of $3.5 billion and is part of the real estate industry. Shares are up 34.7% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates New Residential Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income 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 underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income has significantly decreased by 26.2% when compared to the same quarter one year ago, falling from $48.77 million to $35.98 million.
  • NEW RESIDENTIAL INV CP's earnings per share declined by 34.2% 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, NEW RESIDENTIAL INV CP increased its bottom line by earning $2.52 versus $1.96 in the prior year. For the next year, the market is expecting a contraction of 24.6% in earnings ($1.90 versus $2.52).
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, NEW RESIDENTIAL INV CP's return on equity exceeds that of both the industry average and the S&P 500.
  • NRZ, with its decline in revenue, underperformed when compared the industry average of 8.4%. Since the same quarter one year prior, revenues fell by 10.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for NEW RESIDENTIAL INV CP is currently very high, coming in at 76.46%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, NRZ's net profit margin of 38.02% significantly outperformed against the industry.

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LinnCo

Dividend Yield: 11.50%

LinnCo (NASDAQ: LNCO) shares currently have a dividend yield of 11.50%.

LinnCo, LLC, through its limited liability company interests in Linn Energy, LLC, focuses on the acquisition and development of oil and natural gas properties in the United States. The company was founded in 2012 and is headquartered in Houston, Texas.

The average volume for LinnCo has been 1,659,300 shares per day over the past 30 days. LinnCo has a market cap of $1.4 billion and is part of the energy industry. Shares are up 4.7% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates LinnCo as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, generally disappointing historical performance in the stock itself and deteriorating net income.

Highlights from the ratings report include:
  • 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, LINNCO LLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • LNCO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 57.94%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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 change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 37.5% when compared to the same quarter one year ago, falling from -$926.97 million to -$1,274.44 million.
  • LNCO, with its very weak revenue results, has greatly underperformed against the industry average of 38.3%. Since the same quarter one year prior, revenues plummeted by 627.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for LINNCO LLC is currently very high, coming in at 100.00%. LNCO has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, LNCO's net profit margin of 62.48% significantly outperformed against the industry.

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Hatteras Financial

Dividend Yield: 11.10%

Hatteras Financial (NYSE: HTS) shares currently have a dividend yield of 11.10%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States.

The average volume for Hatteras Financial has been 742,600 shares per day over the past 30 days. Hatteras Financial has a market cap of $1.7 billion and is part of the real estate industry. Shares are down 2.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Hatteras Financial 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 when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 305.6% when compared to the same quarter one year ago, falling from $16.80 million to -$34.54 million.
  • The share price of HATTERAS FINANCIAL CORP has not done very well: it is down 9.08% 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.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, HATTERAS FINANCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for HATTERAS FINANCIAL CORP is currently very high, coming in at 92.05%. Regardless of HTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTS's net profit margin of -33.26% significantly underperformed when compared to the industry average.
  • HTS, with its decline in revenue, slightly underperformed the industry average of 8.4%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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