3 Sell-Rated Dividend Stocks: ARR, FULL, GOOD

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: 16.70%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 16.70%.

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 2,450,200 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $1.0 billion and is part of the real estate industry. Shares are down 22% year-to-date as of the close of trading on Tuesday.

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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 35.31%, 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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Full Circle Capital

Dividend Yield: 11.60%

Full Circle Capital (NASDAQ: FULL) shares currently have a dividend yield of 11.60%.

Full Circle Capital Corporation is a business development company specializing in debt and equity securities of smaller and lower middle-market companies.

The average volume for Full Circle Capital has been 177,200 shares per day over the past 30 days. Full Circle Capital has a market cap of $84.3 million and is part of the financial services industry. Shares are down 19.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Full Circle Capital as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 Capital Markets industry. The net income has significantly decreased by 51.0% when compared to the same quarter one year ago, falling from $3.38 million to $1.66 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 Capital Markets industry and the overall market, FULL CIRCLE CAPITAL 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 54.99%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 61.11% 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.
  • FULL CIRCLE CAPITAL 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, FULL CIRCLE CAPITAL CORP swung to a loss, reporting -$0.83 versus $0.52 in the prior year. This year, the market expects an improvement in earnings ($0.61 versus -$0.83).
  • FULL, with its decline in revenue, underperformed when compared the industry average of 5.7%. Since the same quarter one year prior, revenues fell by 22.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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Gladstone Commercial

Dividend Yield: 8.80%

Gladstone Commercial (NASDAQ: GOOD) shares currently have a dividend yield of 8.80%.

Gladstone Commercial Corporation operates as a real estate investment trust (REIT) in the United States. It engages in investing in and owning net leased industrial and commercial real properties, and making long-term industrial and commercial mortgage loans. The company has a P/E ratio of 59.10.

The average volume for Gladstone Commercial has been 89,100 shares per day over the past 30 days. Gladstone Commercial has a market cap of $355.3 million and is part of the real estate industry. Shares are down 0.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Gladstone Commercial 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:
  • In its most recent trading session, GOOD 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. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • 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, GLADSTONE COMMERCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • GLADSTONE COMMERCIAL CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, GLADSTONE COMMERCIAL CORP reported poor results of -$0.61 versus -$0.22 in the prior year.
  • 40.86% is the gross profit margin for GLADSTONE COMMERCIAL CORP which we consider to be strong. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, GOOD's net profit margin of 3.49% significantly trails the industry average.
  • Net operating cash flow has increased to $8.94 million or 45.08% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.79%.

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