3 Sell-Rated Dividend Stocks: ARR, CIO, PGH

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."

ARMOUR Residential REIT

Dividend Yield: 17.70%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 17.70%.

ARMOUR Residential REIT, Inc. invests in and manages a portfolio of residential mortgage backed securities in the United States. The company is managed by ARMOUR Capital Management LP.

The average volume for ARMOUR Residential REIT has been 393,900 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $978.6 million and is part of the real estate industry. Shares are down 26.2% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates ARMOUR Residential 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 $37.84 million or 57.51% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • ARR'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 34.34%, 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 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, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The revenue fell significantly faster than the industry average of 9.7%. Since the same quarter one year prior, revenues fell by 20.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • ARMOUR RESIDENTIAL REIT 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, ARMOUR RESIDENTIAL REIT INC reported poor results of -$4.40 versus -$4.24 in the prior year. This year, the market expects an improvement in earnings ($3.58 versus -$4.40).

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City Office REIT

Dividend Yield: 8.10%

City Office REIT (NYSE: CIO) shares currently have a dividend yield of 8.10%.

City Office REIT, Inc is an equity real estate investment trust. The fund invests in the real estate markets of the United States. It acquires, own and operate high-quality office properties. City Office REIT, Inc was formed in November 26, 2013 and is domiciled in the United States.

The average volume for City Office REIT has been 41,100 shares per day over the past 30 days. City Office REIT has a market cap of $144.9 million and is part of the real estate industry. Shares are down 8.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates City Office REIT as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and poor profit margins.

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 133.6% when compared to the same quarter one year ago, falling from $2.21 million to -$0.74 million.
  • The gross profit margin for CITY OFFICE REIT INC is currently extremely low, coming in at 12.25%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -6.59% is significantly below that of the industry average.
  • CITY OFFICE REIT 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. This year, the market expects an improvement in earnings (-$0.24 versus -$0.32).
  • The share price of CITY OFFICE REIT INC has not done very well: it is down 8.61% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CITY OFFICE REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.

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Pengrowth Energy

Dividend Yield: 15.80%

Pengrowth Energy (NYSE: PGH) shares currently have a dividend yield of 15.80%.

Pengrowth Energy Corporation engages in the acquisition, development, exploration, and production of oil and natural gas assets in the Alberta, British Columbia, Saskatchewan, and Nova Scotia provinces in Canada.

The average volume for Pengrowth Energy has been 1,783,200 shares per day over the past 30 days. Pengrowth Energy has a market cap of $627.2 million and is part of the energy industry. Shares are down 65% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Pengrowth Energy 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, poor profit margins and weak operating cash flow.

Highlights from the ratings report include:
  • PENGROWTH ENERGY 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, PENGROWTH ENERGY CORP reported poor results of -$1.09 versus -$0.61 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 1427.3% when compared to the same quarter one year ago, falling from -$8.80 million to -$134.40 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 Oil, Gas & Consumable Fuels industry and the overall market, PENGROWTH ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for PENGROWTH ENERGY CORP is rather low; currently it is at 15.47%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -94.05% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $97.50 million or 10.87% when compared to the same quarter last year. Despite a decrease in cash flow of 10.87%, PENGROWTH ENERGY CORP is in line with the industry average cash flow growth rate of -20.54%.

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