What To Sell: 3 Sell-Rated Dividend Stocks SDLP, LGCY, CELP

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."

Seadrill Partners

Dividend Yield: 17.40%

Seadrill Partners (NYSE: SDLP) shares currently have a dividend yield of 17.40%.

Seadrill Partners LLC owns, operates, and acquires offshore drilling units. The company primarily serves various oil and gas companies. As of March 31, 2015, its fleet consisted of four semi-submersible drilling rigs, three drillships, and three tender rigs. The company has a P/E ratio of 6.08.

The average volume for Seadrill Partners has been 357,200 shares per day over the past 30 days. Seadrill Partners has a market cap of $984.6 million and is part of the energy industry. Shares are down 24.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Seadrill 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 is very high at 3.97 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SDLP maintains a poor quick ratio of 0.96, which illustrates the inability to avoid short-term cash problems.
  • 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 Energy Equipment & Services industry and the overall market on the basis of return on equity, SEADRILL PARTNERS LLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • SDLP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 60.27%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
  • SEADRILL PARTNERS LLC has improved earnings per share by 35.5% 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, SEADRILL PARTNERS LLC reported lower earnings of $1.72 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.71 versus $1.72).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 92.9% when compared to the same quarter one year prior, rising from $19.80 million to $38.20 million.

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Legacy Reserves

Dividend Yield: 14.90%

Legacy Reserves (NASDAQ: LGCY) shares currently have a dividend yield of 14.90%.

Legacy Reserves LP owns and operates oil and natural gas properties in the United States.

The average volume for Legacy Reserves has been 445,500 shares per day over the past 30 days. Legacy Reserves has a market cap of $649.9 million and is part of the energy industry. Shares are down 17.9% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Legacy Reserves 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, 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 43608.4% when compared to the same quarter one year ago, falling from $0.53 million to -$228.85 million.
  • The debt-to-equity ratio is very high at 2.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LGCY maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
  • 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, LEGACY RESERVES LP'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 -$2.18 million or 103.61% 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 67.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 34000.00% 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.

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Cypress Energy Partners

Dividend Yield: 9.80%

Cypress Energy Partners (NYSE: CELP) shares currently have a dividend yield of 9.80%.

Cypress Energy Partners, L.P. provides saltwater disposal (SWD), and other water and environmental services in North America. It operates in two segments: Water and Environmental Services (W&ES), and Pipeline Inspection and Integrity Services (PI&IS).

The average volume for Cypress Energy Partners has been 44,900 shares per day over the past 30 days. Cypress Energy Partners has a market cap of $97.7 million and is part of the energy industry. Shares are up 15.4% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Cypress Energy Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, generally disappointing historical performance in the stock itself and generally high debt management risk.

Highlights from the ratings report include:
  • The gross profit margin for CYPRESS ENERGY PARTNERS LP is currently extremely low, coming in at 11.21%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.82% trails that of the industry average.
  • The debt-to-equity ratio is very high at 3.04 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 4.51, which shows the ability to cover short-term cash needs.
  • CELP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 30.00%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Commercial Services & Supplies industry average. The net income has decreased by 3.1% when compared to the same quarter one year ago, dropping from $2.74 million to $2.66 million.
  • CELP, with its decline in revenue, slightly underperformed the industry average of 1.0%. Since the same quarter one year prior, revenues slightly dropped by 3.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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