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."

ZAIS Financial

Dividend Yield: 11.90%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 11.90%.

Zais Financial Corp. originates, acquires, finances, sells, services, and manages residential mortgage loans in the United States. It originates mortgage loans through its GMFS mortgage banking platform; and acquires performing, re-performing, and newly originated loans through other channels. The company has a P/E ratio of 12.41.

The average volume for ZAIS Financial has been 20,900 shares per day over the past 30 days. ZAIS Financial has a market cap of $106.8 million and is part of the real estate industry. Shares are down 22.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates ZAIS Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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:
  • 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 73.9% when compared to the same quarter one year ago, falling from $23.17 million to $6.05 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ZAIS FINANCIAL CORP's return on equity is below that of both the industry average and the S&P 500.
  • The share price of ZAIS FINANCIAL CORP has not done very well: it is down 21.90% 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. 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.
  • ZAIS FINANCIAL 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ZAIS FINANCIAL CORP increased its bottom line by earning $2.91 versus $0.81 in the prior year. For the next year, the market is expecting a contraction of 41.6% in earnings ($1.70 versus $2.91).
  • ZFC, with its decline in revenue, underperformed when compared the industry average of 9.8%. Since the same quarter one year prior, revenues fell by 11.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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Dynagas LNG Partners

Dividend Yield: 12.10%

Dynagas LNG Partners (NYSE: DLNG) shares currently have a dividend yield of 12.10%.

Dynagas LNG Partners LP, through its subsidiaries, operates in the seaborne transportation industry worldwide. The company owns and operates liquefied natural gas (LNG) vessels. The company has a P/E ratio of 8.60.

The average volume for Dynagas LNG Partners has been 94,300 shares per day over the past 30 days. Dynagas LNG Partners has a market cap of $287.3 million and is part of the transportation industry. Shares are down 9.1% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Dynagas LNG Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • Currently the debt-to-equity ratio of 1.90 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.44, which clearly demonstrates the inability to cover short-term cash needs.
  • Net operating cash flow has decreased to $14.25 million or 23.50% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, DYNAGAS LNG PARTNERS LP has marginally lower results.
  • DLNG'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 25.68%, 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 gross profit margin for DYNAGAS LNG PARTNERS LP is currently very high, coming in at 81.42%. Regardless of DLNG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DLNG's net profit margin of 40.23% significantly outperformed against the industry.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, DYNAGAS LNG PARTNERS LP's return on equity exceeds that of both the industry average and the S&P 500.

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American Capital Mortgage Investment

Dividend Yield: 10.70%

American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 10.70%.

American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 59.76.

The average volume for American Capital Mortgage Investment has been 503,500 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $764.8 million and is part of the real estate industry. Shares are down 21.1% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates American Capital Mortgage Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, deteriorating net income, disappointing return on equity, weak operating cash flow and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The share price of AMERICAN CAPITAL MTG INV CP has not done very well: it is down 24.17% 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. 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, 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 147.4% when compared to the same quarter one year ago, falling from $84.30 million to -$39.96 million.
  • 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, AMERICAN CAPITAL MTG INV CP'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 $37.95 million or 5.40% 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.
  • AMERICAN CAPITAL MTG INV CP 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 company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN CAPITAL MTG INV CP turned its bottom line around by earning $3.06 versus -$1.58 in the prior year. For the next year, the market is expecting a contraction of 36.3% in earnings ($1.95 versus $3.06).

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