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

ARMOUR Residential REIT

Dividend Yield: 15.90%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 15.90%.

ARMOUR Residential REIT, Inc. invests in and manages a portfolio of residential mortgage backed securities in the United States. The company is managed by ARMOUR Capital Management LP.

The average volume for ARMOUR Residential REIT has been 2,400,700 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $1.1 billion and is part of the real estate industry. Shares are down 18.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates ARMOUR Residential REIT 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, 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 534.4% when compared to the same quarter one year ago, falling from -$19.78 million to -$125.47 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 Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $73.10 million or 4.68% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ARMOUR RESIDENTIAL REIT INC has marginally lower results.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 30.10%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 428.57% 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.
  • ARMOUR RESIDENTIAL REIT 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. 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, ARMOUR RESIDENTIAL REIT INC reported poor results of -$0.55 versus -$0.53 in the prior year. This year, the market expects an improvement in earnings ($0.43 versus -$0.55).

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JAVELIN Mortgage Investment

Dividend Yield: 14.60%

JAVELIN Mortgage Investment (NYSE: JMI) shares currently have a dividend yield of 14.60%.

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 117,600 shares per day over the past 30 days. JAVELIN Mortgage Investment has a market cap of $88.7 million and is part of the real estate industry. Shares are down 28.2% year-to-date as of the close of trading on Thursday.

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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 44.77%, 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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Teekay Offshore Partners

Dividend Yield: 9.90%

Teekay Offshore Partners (NYSE: TOO) shares currently have a dividend yield of 9.90%.

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 23.43.

The average volume for Teekay Offshore Partners has been 228,600 shares per day over the past 30 days. Teekay Offshore Partners has a market cap of $2.0 billion and is part of the transportation industry. Shares are down 19.3% year-to-date as of the close of trading on Thursday.

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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 35.68%, 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 ($1.43 versus -$0.22).

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