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

JAVELIN Mortgage Investment

Dividend Yield: 14.50%

JAVELIN Mortgage Investment (NYSE: JMI) shares currently have a dividend yield of 14.50%.

JAVELIN Mortgage Investment Corp., a real estate investment trust (REIT), invests primarily in fixed rate agency, and fixed rate and hybrid adjustable rate non-agency residential mortgage-backed securities in the United States. The company qualifies as a REIT for federal income tax purposes.

The average volume for JAVELIN Mortgage Investment has been 125,800 shares per day over the past 30 days. JAVELIN Mortgage Investment has a market cap of $89.5 million and is part of the real estate industry. Shares are down 28.1% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates JAVELIN Mortgage Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to $2.71 million or 78.66% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • JMI'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 43.58%, 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.
  • 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, JAVELIN MORTGAGE INVESTMENT's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for JAVELIN MORTGAGE INVESTMENT is currently very high, coming in at 81.81%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, JMI's net profit margin of -189.68% significantly underperformed when compared to the industry average.
  • JAVELIN MORTGAGE INVESTMENT 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, JAVELIN MORTGAGE INVESTMENT continued to lose money by earning -$1.81 versus -$1.96 in the prior year. This year, the market expects an improvement in earnings ($0.96 versus -$1.81).

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Midcoast Energy Partners

Dividend Yield: 10.90%

Midcoast Energy Partners (NYSE: MEP) shares currently have a dividend yield of 10.90%.

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 13.44.

The average volume for Midcoast Energy Partners has been 95,300 shares per day over the past 30 days. Midcoast Energy Partners has a market cap of $288.7 million and is part of the energy industry. Shares are down 6.7% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Midcoast Energy Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, weak operating cash flow, 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 5100.0% when compared to the same quarter one year ago, falling from $0.40 million to -$20.00 million.
  • The gross profit margin for MIDCOAST ENERGY PARTNERS LP is currently extremely low, coming in at 1.14%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.28% trails that of the industry average.
  • Net operating cash flow has decreased to $168.20 million or 21.32% when compared to the same quarter last year. Despite a decrease in cash flow MIDCOAST ENERGY PARTNERS LP is still fairing well by exceeding its industry average cash flow growth rate of -53.34%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 41.38%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 4500.00% 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.
  • MIDCOAST ENERGY 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. 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, 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 133.2% in earnings (-$0.47 versus $1.40).

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Student Transportation

Dividend Yield: 8.70%

Student Transportation (AMEX: STB) shares currently have a dividend yield of 8.70%.

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 263.00.

The average volume for Student Transportation has been 147,200 shares per day over the past 30 days. Student Transportation has a market cap of $503.9 million and is part of the transportation industry. Shares are down 15.6% year-to-date as of the close of trading on Friday.

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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, feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • The share price of STUDENT TRANSPORTATION INC has not done very well: it is down 16.09% 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. 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.
  • STUDENT TRANSPORTATION INC's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. 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.
  • 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 Road & Rail industry average. The net income has significantly decreased by 27.2% when compared to the same quarter one year ago, falling from $2.60 million to $1.89 million.
  • 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 23.13%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.21% significantly trails the industry average.

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