What To Sell: 3 Sell-Rated Dividend Stocks EARN, OHAI, TOO

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."

Ellington Residential Mortgage REIT

Dividend Yield: 13.80%

Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 13.80%.

Ellington Residential Mortgage REIT is a real estate investment trust. The company has a P/E ratio of 8.53.

The average volume for Ellington Residential Mortgage REIT has been 39,300 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $146.0 million and is part of the real estate industry. Shares are down 2.3% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Ellington Residential Mortgage REIT as a sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • In its most recent trading session, EARN 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.
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ELLINGTON RESIDENTIAL MTG's return on equity is below that of both the industry average and the S&P 500.
  • EARN, with its decline in revenue, underperformed when compared the industry average of 8.4%. Since the same quarter one year prior, revenues fell by 14.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 86.23%. Regardless of EARN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EARN's net profit margin of 35.76% compares favorably to the industry average.

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OHA Investment

Dividend Yield: 8.50%

OHA Investment (NASDAQ: OHAI) shares currently have a dividend yield of 8.50%.

OHA Investment Corporation is a business development company specializing in investments in small and mid size and middle market private companies.

The average volume for OHA Investment has been 57,700 shares per day over the past 30 days. OHA Investment has a market cap of $115.5 million and is part of the financial services industry. Shares are up 21.1% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates OHA Investment 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, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • OHA INVESTMENT CORP 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 two years. During the past fiscal year, OHA INVESTMENT CORP swung to a loss, reporting -$1.08 versus $0.19 in the prior year.
  • 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 Capital Markets industry. The net income has significantly decreased by 434.4% when compared to the same quarter one year ago, falling from $2.91 million to -$9.74 million.
  • 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 Capital Markets industry and the overall market, OHA INVESTMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$15.85 million or 579.25% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of OHA INVESTMENT CORP has not done very well: it is down 9.59% 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.

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Teekay Offshore Partners

Dividend Yield: 9.00%

Teekay Offshore Partners (NYSE: TOO) shares currently have a dividend yield of 9.00%.

Teekay Offshore Partners L.P. provides marine transportation, oil production, storage, towage, and floating accommodation services to the offshore oil industry in the North Sea and Brazil. The company has a P/E ratio of 25.60.

The average volume for Teekay Offshore Partners has been 237,000 shares per day over the past 30 days. Teekay Offshore Partners has a market cap of $2.2 billion and is part of the transportation industry. Shares are down 13.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Teekay Offshore Partners 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, 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 334.6% when compared to the same quarter one year ago, falling from $7.34 million to -$17.23 million.
  • The debt-to-equity ratio is very high at 3.97 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, TOO has a quick ratio of 0.56, this demonstrates the lack of ability of the company to cover 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 Oil, Gas & Consumable Fuels industry and the overall market, TEEKAY OFFSHORE 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 32.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 2700.00% 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.
  • TEEKAY OFFSHORE 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TEEKAY OFFSHORE PARTNERS LP swung to a loss, reporting -$0.22 versus $0.94 in the prior year. This year, the market expects an improvement in earnings ($1.74 versus -$0.22).

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