3 Sell-Rated Dividend Stocks: BTE, HTS, LNCO

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."

Baytex Energy

Dividend Yield: 5.50%

Baytex Energy (NYSE: BTE) shares currently have a dividend yield of 5.50%.

Baytex Energy Corp., an oil and gas company, engages in the acquisition, development, exploitation, and production of oil and natural gas in the Western Canadian Sedimentary Basin and the United States. The company offers heavy oil, light oil, condensate, and natural gas liquids.

The average volume for Baytex Energy has been 845,500 shares per day over the past 30 days. Baytex Energy has a market cap of $3.0 billion and is part of the energy industry. Shares are up 4.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Baytex Energy 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 and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • BAYTEX ENERGY 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, BAYTEX ENERGY CORP swung to a loss, reporting -$0.65 versus $1.32 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 467.7% when compared to the same quarter one year ago, falling from $47.84 million to -$175.92 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 Oil, Gas & Consumable Fuels industry and the overall market, BAYTEX ENERGY CORP'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 59.18%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 373.68% 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.
  • 46.97% is the gross profit margin for BAYTEX ENERGY CORP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, BTE's net profit margin of -76.85% significantly underperformed when compared to the industry average.

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Hatteras Financial

Dividend Yield: 11.60%

Hatteras Financial (NYSE: HTS) shares currently have a dividend yield of 11.60%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States.

The average volume for Hatteras Financial has been 717,800 shares per day over the past 30 days. Hatteras Financial has a market cap of $1.7 billion and is part of the real estate industry. Shares are down 4.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Hatteras Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 305.6% when compared to the same quarter one year ago, falling from $16.80 million to -$34.54 million.
  • The share price of HATTERAS FINANCIAL CORP has not done very well: it is down 11.93% 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.
  • 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, HATTERAS FINANCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for HATTERAS FINANCIAL CORP is currently very high, coming in at 92.05%. Regardless of HTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTS's net profit margin of -33.26% significantly underperformed when compared to the industry average.
  • Net operating cash flow has remained constant at $100.19 million with no significant change when compared to the same quarter last year. This quarter, HATTERAS FINANCIAL CORP's cash flow growth rate has remained relatively unchanged and is slightly below the industry average.

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LinnCo

Dividend Yield: 11.70%

LinnCo (NASDAQ: LNCO) shares currently have a dividend yield of 11.70%.

LinnCo, LLC, through its limited liability company interests in Linn Energy, LLC, focuses on the acquisition and development of oil and natural gas properties in the United States. The company was founded in 2012 and is headquartered in Houston, Texas.

The average volume for LinnCo has been 1,553,600 shares per day over the past 30 days. LinnCo has a market cap of $1.4 billion and is part of the energy industry. Shares are up 1.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates LinnCo 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 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 69.2% when compared to the same quarter one year ago, falling from -$19.48 million to -$32.98 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 Oil, Gas & Consumable Fuels industry and the overall market, LINNCO LLC'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 $40.52 million or 56.53% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, LINNCO LLC 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 63.44%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 73.33% 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.
  • Along with the very weak revenue results, LNCO underperformed when compared to the industry average of 38.5%. Since the same quarter one year prior, revenues plummeted by 65.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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