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."

Precision Drilling

Dividend Yield: 4.20%

Precision Drilling (NYSE: PDS) shares currently have a dividend yield of 4.20%.

Precision Drilling Corporation provides oil and natural gas drilling and related services and products. The company operates through two segments, Contract Drilling Services; and Completion and Production Services.

The average volume for Precision Drilling has been 2,801,400 shares per day over the past 30 days. Precision Drilling has a market cap of $1.5 billion and is part of the energy industry. Shares are down 18.1% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Precision Drilling 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, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • PRECISION DRILLING 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. During the past fiscal year, PRECISION DRILLING CORP reported lower earnings of $0.12 versus $0.67 in the prior year.
  • 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 Energy Equipment & Services industry. The net income has significantly decreased by 315.6% when compared to the same quarter one year ago, falling from -$7.17 million to -$29.82 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 Energy Equipment & Services industry and the overall market, PRECISION DRILLING CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $169.88 million or 25.62% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly 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 59.53%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 400.00% 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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Hatteras Financial

Dividend Yield: 12.40%

Hatteras Financial (NYSE: HTS) shares currently have a dividend yield of 12.40%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States. The company has a P/E ratio of 77.10.

The average volume for Hatteras Financial has been 793,700 shares per day over the past 30 days. Hatteras Financial has a market cap of $1.6 billion and is part of the real estate industry. Shares are down 12.1% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Hatteras Financial 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:
  • HTS has underperformed the S&P 500 Index, declining 16.57% from its price level of one year ago. 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, HATTERAS FINANCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • HTS, with its decline in revenue, underperformed when compared the industry average of 8.9%. Since the same quarter one year prior, revenues fell by 10.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for HATTERAS FINANCIAL CORP is currently very high, coming in at 88.32%. Regardless of HTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTS's net profit margin of 32.02% compares favorably to the industry average.
  • HATTERAS FINANCIAL CORP 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HATTERAS FINANCIAL CORP turned its bottom line around by earning $0.36 versus -$1.60 in the prior year. This year, the market expects an improvement in earnings ($1.20 versus $0.36).

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Invesco Mortgage Capital

Dividend Yield: 12.60%

Invesco Mortgage Capital (NYSE: IVR) shares currently have a dividend yield of 12.60%.

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 1,191,400 shares per day over the past 30 days. Invesco Mortgage Capital has a market cap of $1.8 billion and is part of the real estate industry. Shares are down 8.8% year-to-date as of the close of trading on Wednesday.

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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. Despite a decrease in cash flow of 1.82%, INVESCO MORTGAGE CAPITAL INC is still significantly exceeding the industry average of -70.48%.
  • IVR has underperformed the S&P 500 Index, declining 16.43% 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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