3 Sell-Rated Dividend Stocks: DSWL, BDMS, WHLR

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."

Deswell Industries

Dividend Yield: 7.80%

Deswell Industries (NASDAQ: DSWL) shares currently have a dividend yield of 7.80%.

Deswell Industries, Inc. manufactures and sells injection-molded plastic parts and components, electronic products, assembling, and metallic parts for original equipment manufacturers and contract manufacturers.

The average volume for Deswell Industries has been 21,300 shares per day over the past 30 days. Deswell Industries has a market cap of $28.9 million and is part of the consumer non-durables industry. Shares are unchanged year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Deswell Industries as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to -$0.31 million or 447.72% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • DSWL has underperformed the S&P 500 Index, declining 10.45% 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 gross profit margin for DESWELL INDUSTRIES INC is rather low; currently it is at 19.76%. Regardless of DSWL'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 0.15% trails the industry average.
  • 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 Electronic Equipment, Instruments & Components industry and the overall market, DESWELL INDUSTRIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • DESWELL INDUSTRIES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, DESWELL INDUSTRIES INC continued to lose money by earning -$0.17 versus -$0.47 in the prior year.

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Birner Dental Management Services

Dividend Yield: 7.10%

Birner Dental Management Services (NASDAQ: BDMS) shares currently have a dividend yield of 7.10%.

Birner Dental Management Services, Inc. provides business services to dental group practices in Colorado, New Mexico, and Arizona.

The average volume for Birner Dental Management Services has been 2,800 shares per day over the past 30 days. Birner Dental Management Services has a market cap of $23.0 million and is part of the diversified services industry. Shares are down 17.5% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Birner Dental Management Services 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, generally high debt management risk, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 3.02 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, BDMS has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity 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 Health Care Providers & Services industry and the overall market, BIRNER DENTAL MGMT SVCS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for BIRNER DENTAL MGMT SVCS INC is rather low; currently it is at 21.78%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.27% trails that of the industry average.
  • Net operating cash flow has declined marginally to $0.33 million or 1.18% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, BIRNER DENTAL MGMT SVCS INC has marginally lower results.
  • BIRNER DENTAL MGMT SVCS 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. During the past fiscal year, BIRNER DENTAL MGMT SVCS INC swung to a loss, reporting -$0.49 versus $0.05 in the prior year.

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Wheeler Real Estate Investment

Dividend Yield: 10.00%

Wheeler Real Estate Investment (NASDAQ: WHLR) shares currently have a dividend yield of 10.00%.

Wheeler Real Estate Investment Trust, Inc. engages in acquiring, financing, developing, leasing, owning, and managing real estate properties in the mid-Atlantic, southeast, and southwest United States.

The average volume for Wheeler Real Estate Investment has been 31,900 shares per day over the past 30 days. Wheeler Real Estate Investment has a market cap of $16.4 million and is part of the real estate industry. Shares are down 47.1% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Wheeler Real Estate Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 224.5% when compared to the same quarter one year ago, falling from -$1.16 million to -$3.76 million.
  • Net operating cash flow has significantly decreased to -$4.74 million or 7622.22% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 57.18%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 370.58% 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.
  • WHEELER REAL ESTATE INVT TR 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, WHEELER REAL ESTATE INVT TR reported poor results of -$1.80 versus -$0.94 in the prior year. This year, the market expects an improvement in earnings (-$1.19 versus -$1.80).
  • 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, WHEELER REAL ESTATE INVT TR's return on equity significantly trails that of both the industry average and the S&P 500.

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