3 Sell-Rated Dividend Stocks: EARN, JMI, EROC

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."

Ellington Residential Mortgage REIT

Dividend Yield: 16.30%

Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 16.30%.

Ellington Residential Mortgage REIT, a real estate investment trust, specializes in acquiring, investing in, and managing residential mortgage-and real estate-related assets. The company has a P/E ratio of 19.82.

The average volume for Ellington Residential Mortgage REIT has been 44,600 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $123.3 million and is part of the real estate industry. Shares are down 17.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Ellington Residential Mortgage REIT 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 $1.22 million or 81.07% 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.
  • EARN 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.
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ELLINGTON RESIDENTIAL MTG's return on equity is below that of both the industry average and the S&P 500.
  • EARN, with its decline in revenue, underperformed when compared the industry average of 6.6%. Since the same quarter one year prior, revenues fell by 14.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 86.23%. Regardless of EARN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EARN's net profit margin of 35.76% compares favorably to the industry average.

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JAVELIN Mortgage Investment

Dividend Yield: 15.30%

JAVELIN Mortgage Investment (NYSE: JMI) shares currently have a dividend yield of 15.30%.

JAVELIN Mortgage Investment Corp., a real estate investment trust (REIT), invests primarily in fixed rate agency, and fixed rate and hybrid adjustable rate non-agency residential mortgage-backed securities in the United States. The company qualifies as a REIT for federal income tax purposes.

The average volume for JAVELIN Mortgage Investment has been 63,500 shares per day over the past 30 days. JAVELIN Mortgage Investment has a market cap of $84.3 million and is part of the real estate industry. Shares are down 32.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates JAVELIN Mortgage Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 232.0% when compared to the same quarter one year ago, falling from -$1.86 million to -$6.19 million.
  • Net operating cash flow has significantly decreased to $0.57 million or 82.41% 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 46.87%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 225.00% 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.
  • 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, JAVELIN MORTGAGE INVESTMENT's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for JAVELIN MORTGAGE INVESTMENT is currently very high, coming in at 88.33%. Regardless of JMI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, JMI's net profit margin of -41.57% significantly underperformed when compared to the industry average.

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Eagle Rock Energy Partners

Dividend Yield: 19.20%

Eagle Rock Energy Partners (NASDAQ: EROC) shares currently have a dividend yield of 19.20%.

Eagle Rock Energy Partners, L.P., together with its subsidiaries, develops and produces oil and natural gas properties in the United States.

The average volume for Eagle Rock Energy Partners has been 522,000 shares per day over the past 30 days. Eagle Rock Energy Partners has a market cap of $223.4 million and is part of the energy industry. Shares are down 31.8% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Eagle Rock Energy Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its 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:
  • 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, EAGLE ROCK ENERGY PARTNRS 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 57.63%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 45.45% 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.
  • EAGLE ROCK ENERGY PARTNRS LP's earnings per share declined by 45.5% in the most recent quarter compared to 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, EAGLE ROCK ENERGY PARTNRS LP reported poor results of -$2.25 versus -$1.48 in the prior year. This year, the market expects an improvement in earnings (-$0.22 versus -$2.25).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 37.8%. Since the same quarter one year prior, revenues fell by 36.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The current debt-to-equity ratio, 0.51, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that EROC's debt-to-equity ratio is low, the quick ratio, which is currently 0.54, displays a potential problem in covering short-term cash needs.

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