3 Sell-Rated Dividend Stocks: BGSF, ENBL, EARN

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."

BG Staffing

Dividend Yield: 9.10%

BG Staffing (AMEX: BGSF) shares currently have a dividend yield of 9.10%.

BG Staffing, Inc. operates as a temporary staffing company in the United States. It operates through three segments: Light Industrial, Multifamily, and IT Staffing. The company has a P/E ratio of 52.38.

The average volume for BG Staffing has been 1,400 shares per day over the past 30 days. BG Staffing has a market cap of $79.7 million and is part of the diversified services industry. Shares are down 15.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates BG Staffing as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow, generally high debt management risk and poor profit margins.

Highlights from the ratings report include:
  • Net operating cash flow has decreased to $2.22 million or 22.00% 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.
  • Currently the debt-to-equity ratio of 1.81 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, BGSF has managed to keep a strong quick ratio of 1.66, which demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for BG STAFFING INC is rather low; currently it is at 20.40%. Regardless of BGSF'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 0.40% trails the industry average.
  • In comparison to the other companies in the Professional Services industry and the overall market, BG STAFFING INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • BG STAFFING INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago.

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Enable Midstream Partners

Dividend Yield: 7.50%

Enable Midstream Partners (NYSE: ENBL) shares currently have a dividend yield of 7.50%.

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 11.16.

The average volume for Enable Midstream Partners has been 147,700 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 14.3% year-to-date as of the close of trading on Thursday.

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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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Ellington Residential Mortgage REIT

Dividend Yield: 14.70%

Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 14.70%.

Ellington Residential Mortgage REIT is a real estate investment trust. The company has a P/E ratio of 8.00.

The average volume for Ellington Residential Mortgage REIT has been 40,200 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $136.9 million and is part of the real estate industry. Shares are down 6.8% year-to-date as of the close of trading on Thursday.

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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:
  • EARN has underperformed the S&P 500 Index, declining 10.16% from its price level of one year ago. 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 8.5%. 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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