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."

Capstead Mortgage

Dividend Yield: 10.00%

Capstead Mortgage (NYSE: CMO) shares currently have a dividend yield of 10.00%.

Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 8.96.

The average volume for Capstead Mortgage has been 1,127,200 shares per day over the past 30 days. Capstead Mortgage has a market cap of $995.6 million and is part of the real estate industry. Shares are down 15.6% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Capstead Mortgage 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 underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income has significantly decreased by 31.8% when compared to the same quarter one year ago, falling from $36.56 million to $24.94 million.
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
  • The share price of CAPSTEAD MORTGAGE CORP has not done very well: it is down 18.96% 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.
  • CAPSTEAD MORTGAGE CORP's earnings per share declined by 37.1% in the most recent quarter compared to 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, CAPSTEAD MORTGAGE CORP increased its bottom line by earning $1.33 versus $0.93 in the prior year. For the next year, the market is expecting a contraction of 20.3% in earnings ($1.06 versus $1.33).
  • CMO, 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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Bank of Nova Scotia

Dividend Yield: 4.50%

Bank of Nova Scotia (NYSE: BNS) shares currently have a dividend yield of 4.50%.

The Bank of Nova Scotia provides various personal, commercial, corporate, and investment banking services in Canada and internationally. The company has a P/E ratio of 9.92.

The average volume for Bank of Nova Scotia has been 963,300 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $56.8 billion and is part of the banking industry. Shares are down 17.5% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Bank of Nova Scotia as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity 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 underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Commercial Banks industry average. The net income has decreased by 22.0% when compared to the same quarter one year ago, dropping from $2,301.00 million to $1,795.00 million.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, BNS has underperformed the S&P 500 Index, declining 20.79% 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 has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, BANK OF NOVA SCOTIA has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • BANK OF NOVA SCOTIA's earnings per share declined by 21.6% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, BANK OF NOVA SCOTIA increased its bottom line by earning $5.66 versus $1.29 in the prior year.
  • The gross profit margin for BANK OF NOVA SCOTIA is currently very high, coming in at 73.62%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.69% is above that of the industry average.

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New Residential Investment

Dividend Yield: 14.70%

New Residential Investment (NYSE: NRZ) shares currently have a dividend yield of 14.70%.

New Residential Investment Corp., a real estate investment trust (REIT), focuses on investing in and managing residential mortgage related assets. It operates through Servicing Related Assets, Residential Securities and Loans, and Other Investments segments. The company has a P/E ratio of 6.66.

The average volume for New Residential Investment has been 2,448,000 shares per day over the past 30 days. New Residential Investment has a market cap of $2.9 billion and is part of the real estate industry. Shares are down 2.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates New Residential Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity 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 39.2% when compared to the same quarter one year ago, falling from $123.50 million to $75.12 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, NEW RESIDENTIAL INV CP's return on equity is below that of both the industry average and the S&P 500.
  • NEW RESIDENTIAL 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, NEW RESIDENTIAL INV CP increased its bottom line by earning $2.52 versus $1.96 in the prior year. For the next year, the market is expecting a contraction of 26.2% in earnings ($1.86 versus $2.52).
  • The revenue fell significantly faster than the industry average of 9.8%. Since the same quarter one year prior, revenues fell by 22.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for NEW RESIDENTIAL INV CP is currently very high, coming in at 83.38%. Regardless of NRZ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NRZ's net profit margin of 35.72% compares favorably to the industry average.

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