What To Sell: 3 Sell-Rated Dividend Stocks CAPL, NSLP, KNOP

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."

CrossAmerica Partners

Dividend Yield: 7.20%

CrossAmerica Partners (NYSE: CAPL) shares currently have a dividend yield of 7.20%.

CrossAmerica Partners LP operates as a wholesale distributor of motor fuels, and owns and leases real estate used in the retail distribution of motor fuels in the United States.

The average volume for CrossAmerica Partners has been 150,000 shares per day over the past 30 days. CrossAmerica Partners has a market cap of $517.4 million and is part of the energy industry. Shares are down 24.6% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates CrossAmerica Partners 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 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 307.7% when compared to the same quarter one year ago, falling from $1.43 million to -$2.97 million.
  • The debt-to-equity ratio is very high at 2.29 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 0.50, which clearly demonstrates the inability to cover short-term cash needs.
  • 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, CROSSAMERICA PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for CROSSAMERICA PARTNERS LP is currently extremely low, coming in at 7.22%. Regardless of CAPL'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 -0.61% trails the industry average.
  • CROSSAMERICA PARTNERS LP 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, CROSSAMERICA PARTNERS LP swung to a loss, reporting -$0.22 versus $1.19 in the prior year. This year, the market expects an improvement in earnings ($0.21 versus -$0.22).

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New Source Energy Partners

Dividend Yield: 17.40%

New Source Energy Partners (NYSE: NSLP) shares currently have a dividend yield of 17.40%.

New Source Energy Partners L.P. acquires, owns, develops, and produces oil and natural gas properties in the United States. It operates through two segments, Exploration and Production, and Oilfield Services.

The average volume for New Source Energy Partners has been 66,400 shares per day over the past 30 days. New Source Energy Partners has a market cap of $76.0 million and is part of the energy industry. Shares are down 36.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates New Source Energy Partners 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 3634.3% when compared to the same quarter one year ago, falling from -$1.53 million to -$57.17 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, NEW SOURCE ENERGY PRTRS LP'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 79.03%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 2450.00% 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.
  • NEW SOURCE ENERGY PRTRS LP 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, NEW SOURCE ENERGY PRTRS LP swung to a loss, reporting -$2.32 versus $2.92 in the prior year. This year, the market expects an improvement in earnings (-$0.60 versus -$2.32).
  • The debt-to-equity ratio is somewhat low, currently at 0.78, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that NSLP's debt-to-equity ratio is low, the quick ratio, which is currently 0.61, displays a potential problem in covering short-term cash needs.

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KNOT Offshore Partners

Dividend Yield: 8.80%

KNOT Offshore Partners (NYSE: KNOP) shares currently have a dividend yield of 8.80%.

KNOT Offshore Partners LP owns and operates shuttle tankers under long-term charters in the North Sea and Brazil. The company provides crude oil loading, transportation, and storage services under time charters and bareboat charters. The company has a P/E ratio of 21.93.

The average volume for KNOT Offshore Partners has been 126,800 shares per day over the past 30 days. KNOT Offshore Partners has a market cap of $321.0 million and is part of the transportation industry. Shares are up 4.5% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates KNOT Offshore Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The debt-to-equity ratio of 1.46 is relatively high when compared with the industry average, suggesting a need for better debt level management.
  • 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, KNOT OFFSHORE PRTNRS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, KNOP has underperformed the S&P 500 Index, declining 15.23% 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.
  • KNOT OFFSHORE PRTNRS LP's earnings per share declined by 13.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, KNOT OFFSHORE PRTNRS LP increased its bottom line by earning $1.34 versus $0.87 in the prior year. This year, the market expects an improvement in earnings ($1.79 versus $1.34).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 11.9% when compared to the same quarter one year prior, going from $6.42 million to $7.19 million.

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