3 Sell-Rated Dividend Stocks: WMC, CEQP, ENBL

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."

Western Asset Mortgage Capital

Dividend Yield: 17.70%

Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 17.70%.

Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The company has a P/E ratio of 4.53.

The average volume for Western Asset Mortgage Capital has been 602,700 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $633.0 million and is part of the real estate industry. Shares are up 2.7% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Western Asset Mortgage Capital as a sell. The area that we feel has been the company's primary weakness has been its poor profit margins.

Highlights from the ratings report include:
  • The gross profit margin for WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 92.52%. Regardless of WMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.00% trails the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, WESTERN ASSET MTG CAPITAL CP's return on equity exceeds that of both the industry average and the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, and has traded in line with the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
  • WESTERN ASSET MTG CAPITAL CP 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, WESTERN ASSET MTG CAPITAL CP turned its bottom line around by earning $2.36 versus -$1.20 in the prior year. This year, the market expects an improvement in earnings ($2.90 versus $2.36).

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Crestwood Equity Partners

Dividend Yield: 10.70%

Crestwood Equity Partners (NYSE: CEQP) shares currently have a dividend yield of 10.70%.

Crestwood Equity Partners LP provides midstream solutions to customers in the crude oil, natural gas liquids (NGLs), and natural gas sectors of the energy industry in the United States. The company has a P/E ratio of 22.43.

The average volume for Crestwood Equity Partners has been 516,500 shares per day over the past 30 days. Crestwood Equity Partners has a market cap of $962.0 million and is part of the energy industry. Shares are down 36.3% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Crestwood Equity Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity, generally disappointing historical performance in the stock itself, poor profit margins 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 against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 57.6% when compared to the same quarter one year ago, falling from $19.60 million to $8.30 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 Oil, Gas & Consumable Fuels industry and the overall market, CRESTWOOD EQUITY PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 59.13%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 63.63% 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.
  • The gross profit margin for CRESTWOOD EQUITY PARTNERS LP is currently lower than what is desirable, coming in at 27.59%. Regardless of CEQP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.13% trails the industry average.
  • CRESTWOOD EQUITY 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, CRESTWOOD EQUITY PARTNERS LP increased its bottom line by earning $0.32 versus $0.15 in the prior year. For the next year, the market is expecting a contraction of 4.7% in earnings ($0.31 versus $0.32).

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Enable Midstream Partners

Dividend Yield: 7.40%

Enable Midstream Partners (NYSE: ENBL) shares currently have a dividend yield of 7.40%.

Enable Midstream Partners, LP owns, operates, and develops natural gas and crude oil infrastructure assets in the United States. It operates through two segments, Gathering and Processing, and Transportation and Storage. The company has a P/E ratio of 11.26.

The average volume for Enable Midstream Partners has been 153,400 shares per day over the past 30 days. Enable Midstream Partners has a market cap of $3.6 billion and is part of the energy industry. Shares are down 13.5% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Enable Midstream 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 and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • 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 38.9% when compared to the same quarter one year ago, falling from $149.00 million to $91.00 million.
  • The gross profit margin for ENABLE MIDSTREAM PARTNERS LP is currently lower than what is desirable, coming in at 28.73%. Regardless of ENBL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, ENBL's net profit margin of 14.77% compares favorably to the industry average.
  • ENABLE MIDSTREAM PARTNERS LP's earnings per share declined by 38.9% 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, ENABLE MIDSTREAM PARTNERS LP increased its bottom line by earning $1.27 versus $0.28 in the prior year. For the next year, the market is expecting a contraction of 27.6% in earnings ($0.92 versus $1.27).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 38.5%. Since the same quarter one year prior, revenues fell by 38.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The current debt-to-equity ratio, 0.31, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.34 is very weak and demonstrates a lack of ability to pay short-term obligations.

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