3 Sell-Rated Dividend Stocks: AGNC, LINE, CVE

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."

American Capital Agency

Dividend Yield: 12.10%

American Capital Agency (NASDAQ: AGNC) shares currently have a dividend yield of 12.10%.

American Capital Agency Corp. operates as a real estate investment trust (REIT) in the United States.

The average volume for American Capital Agency has been 3,507,900 shares per day over the past 30 days. American Capital Agency has a market cap of $7.0 billion and is part of the real estate industry. Shares are down 9.4% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates American Capital Agency as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating 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 78.7% when compared to the same quarter one year ago, falling from -$141.00 million to -$252.00 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 Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL AGENCY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $420.00 million or 13.93% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The share price of AMERICAN CAPITAL AGENCY CORP has not done very well: it is down 13.32% 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.
  • AMERICAN CAPITAL AGENCY 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. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMERICAN CAPITAL AGENCY CORP swung to a loss, reporting -$0.73 versus $3.17 in the prior year. This year, the market expects an improvement in earnings ($1.52 versus -$0.73).

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Linn Energy

Dividend Yield: 11.70%

Linn Energy (NASDAQ: LINE) shares currently have a dividend yield of 11.70%.

Linn Energy, LLC, an independent oil and natural gas company, acquires and develops oil and natural gas properties in the Unites States.

The average volume for Linn Energy has been 2,439,000 shares per day over the past 30 days. Linn Energy has a market cap of $3.6 billion and is part of the energy industry. Shares are up 5.4% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Linn Energy 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, poor profit margins and weak operating cash flow.

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 297.4% when compared to the same quarter one year ago, falling from -$85.34 million to -$339.16 million.
  • The debt-to-equity ratio is very high at 2.52 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.49, which clearly demonstrates the inability to cover short-term cash needs.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LINN ENERGY LLC is currently extremely low, coming in at 8.13%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -37.00% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $374.70 million or 13.75% when compared to the same quarter last year. Despite a decrease in cash flow LINN ENERGY LLC is still fairing well by exceeding its industry average cash flow growth rate of -53.19%.

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Cenovus Energy

Dividend Yield: 5.20%

Cenovus Energy (NYSE: CVE) shares currently have a dividend yield of 5.20%.

Cenovus Energy Inc., an integrated oil company, develops, produces, and markets crude oil, natural gas liquids (NGLs), and natural gas in Canada with refining operations in the United States.

The average volume for Cenovus Energy has been 1,963,700 shares per day over the past 30 days. Cenovus Energy has a market cap of $13.6 billion and is part of the energy industry. Shares are down 22.9% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Cenovus Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 370.4% when compared to the same quarter one year ago, falling from $247.00 million to -$668.00 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CENOVUS ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for CENOVUS ENERGY INC is currently extremely low, coming in at 12.73%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -21.26% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $275.00 million or 39.82% when compared to the same quarter last year. Despite a decrease in cash flow CENOVUS ENERGY INC is still fairing well by exceeding its industry average cash flow growth rate of -53.19%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 45.55%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 360.60% 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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