What To Sell: 3 Sell-Rated Dividend Stocks BNS, NYRT, IVR

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."

Bank of Nova Scotia

Dividend Yield: 4.20%

Bank of Nova Scotia (NYSE: BNS) shares currently have a dividend yield of 4.20%.

The Bank of Nova Scotia provides various personal, commercial, corporate, and investment banking services in Canada and internationally. The company has a P/E ratio of 11.06.

The average volume for Bank of Nova Scotia has been 763,000 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $63.5 billion and is part of the banking industry. Shares are down 7.4% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Bank of Nova Scotia as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to -$2,077.00 million or 128.90% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • BNS has underperformed the S&P 500 Index, declining 18.92% 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.
  • BANK OF NOVA SCOTIA's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, BANK OF NOVA SCOTIA increased its bottom line by earning $5.66 versus $1.29 in the prior year.
  • The gross profit margin for BANK OF NOVA SCOTIA is currently very high, coming in at 73.25%. Regardless of BNS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 22.96% trails the industry average.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Commercial Banks industry average. The net income increased by 0.9% when compared to the same quarter one year prior, going from $1,742.00 million to $1,757.00 million.

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New York REIT

Dividend Yield: 4.40%

New York REIT (NYSE: NYRT) shares currently have a dividend yield of 4.40%.

New York REIT, Inc. focuses on acquiring commercial real estate, as well as acquiring properties or making other real estate investments that relate to office, retail, multi-family residential, industrial, and hotel property types located primarily in New York City.

The average volume for New York REIT has been 957,300 shares per day over the past 30 days. New York REIT has a market cap of $1.7 billion and is part of the real estate industry. Shares are down 2.8% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates New York REIT as a sell. Among the areas we feel are negative, one of the most important has been generally deteriorating net income.

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 compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income has decreased by 0.5% when compared to the same quarter one year ago, dropping from -$8.16 million to -$8.20 million.
  • NEW YORK REIT INC reported flat earnings per share in the most recent quarter.
  • NYRT has underperformed the S&P 500 Index, declining 8.86% from its price level of one year ago.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, NEW YORK REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 216.45% to $14.45 million when compared to the same quarter last year. In addition, NEW YORK REIT INC has also vastly surpassed the industry average cash flow growth rate of 0.89%.

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Invesco Mortgage Capital

Dividend Yield: 11.30%

Invesco Mortgage Capital (NYSE: IVR) shares currently have a dividend yield of 11.30%.

Invesco Mortgage Capital Inc., a real estate investment trust, focuses on investing in, financing, and managing residential and commercial mortgage-backed securities and mortgage loans. It invests in residential mortgage-backed securities for which a U.S.

The average volume for Invesco Mortgage Capital has been 1,082,200 shares per day over the past 30 days. Invesco Mortgage Capital has a market cap of $2.0 billion and is part of the real estate industry. Shares are up 2.9% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Invesco Mortgage Capital as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, INVESCO MORTGAGE CAPITAL 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 $87.42 million or 1.82% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, INVESCO MORTGAGE CAPITAL INC has marginally lower results.
  • IVR has underperformed the S&P 500 Index, declining 10.79% 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.
  • INVESCO MORTGAGE CAPITAL INC reported significant earnings per share improvement 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, INVESCO MORTGAGE CAPITAL INC swung to a loss, reporting -$1.75 versus $0.90 in the prior year. This year, the market expects an improvement in earnings ($1.93 versus -$1.75).
  • The gross profit margin for INVESCO MORTGAGE CAPITAL INC is currently very high, coming in at 92.63%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -15.03% is in-line with the industry average.

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