What To Sell: 3 Sell-Rated Dividend Stocks ZFC, LEJU, CIO

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."

ZAIS Financial

Dividend Yield: 9.10%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.10%.

Zais Financial Corp. originates, acquires, finances, sells, services, and manages residential mortgage loans in the United States. It originates mortgage loans through its GMFS mortgage banking platform; and acquires performing, re-performing, and newly originated loans through other channels. The company has a P/E ratio of 5.62.

The average volume for ZAIS Financial has been 20,400 shares per day over the past 30 days. ZAIS Financial has a market cap of $139.6 million and is part of the real estate industry. Shares are up 1.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates ZAIS Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income 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 83.2% when compared to the same quarter one year ago, falling from $2.22 million to $0.37 million.
  • ZAIS FINANCIAL 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. 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, ZAIS FINANCIAL CORP increased its bottom line by earning $2.91 versus $0.81 in the prior year. For the next year, the market is expecting a contraction of 31.3% in earnings ($2.00 versus $2.91).
  • Compared to where it was a year ago, 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.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 2.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 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, ZAIS FINANCIAL CORP's return on equity exceeds that of both the industry average and the S&P 500.

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Leju Holdings

Dividend Yield: 9.80%

Leju Holdings (NYSE: LEJU) shares currently have a dividend yield of 9.80%.

Leju Holdings Limited, through its subsidiaries, provides online real estate services in the People's Republic of China. The company has a P/E ratio of 11.97.

The average volume for Leju Holdings has been 552,800 shares per day over the past 30 days. Leju Holdings has a market cap of $1.1 billion and is part of the real estate industry. Shares are down 23.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Leju Holdings as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income 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 Internet Software & Services industry. The net income has significantly decreased by 337.4% when compared to the same quarter one year ago, falling from $2.24 million to -$5.32 million.
  • Net operating cash flow has significantly decreased to -$24.20 million or 461.19% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • LEJU HOLDINGS LTD -ADR 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 year, the market expects an improvement in earnings ($0.65 versus $0.50).
  • The gross profit margin for LEJU HOLDINGS LTD -ADR is currently very high, coming in at 84.13%. Regardless of LEJU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LEJU's net profit margin of -5.68% significantly underperformed when compared to the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 29.30%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 300.00% compared to the year-earlier quarter.

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City Office REIT

Dividend Yield: 7.40%

City Office REIT (NYSE: CIO) shares currently have a dividend yield of 7.40%.

City Office REIT, Inc is an equity real estate investment trust. The fund invests in the real estate markets of the United States. It acquires, own and operate high-quality office properties. City Office REIT, Inc was formed in November 26, 2013 and is domiciled in the United States.

The average volume for City Office REIT has been 35,000 shares per day over the past 30 days. City Office REIT has a market cap of $156.5 million and is part of the real estate industry. Shares are down 1.4% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates City Office REIT as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 133.6% when compared to the same quarter one year ago, falling from $2.21 million to -$0.74 million.
  • The gross profit margin for CITY OFFICE REIT INC is currently extremely low, coming in at 12.25%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -6.59% is significantly below that of the industry average.
  • CITY OFFICE 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. This year, the market expects earnings to be in line with last year (-$0.32 versus -$0.32).
  • In its most recent trading session, CIO 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. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CITY OFFICE REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.

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