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: 19.00%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 19.00%.

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 611,000 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $829.4 million and is part of the real estate industry. Shares are down 28.9% year-to-date as of the close of trading on Tuesday.

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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 the cash generation rate to the industry average, the firm's growth is significantly 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 35.23%, 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.
  • ARR, with its decline in revenue, underperformed when compared the industry average of 6.0%. 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 ($3.56 versus -$4.40).

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Avon Products

Dividend Yield: 7.90%

Avon Products (NYSE: AVP) shares currently have a dividend yield of 7.90%.

Avon Products, Inc. manufactures and markets beauty and related products worldwide.

The average volume for Avon Products has been 10,553,200 shares per day over the past 30 days. Avon Products has a market cap of $1.3 billion and is part of the consumer non-durables industry. Shares are down 66.3% year-to-date as of the close of trading on Tuesday.

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

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 55.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, AVP has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • 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 Personal Products industry and the overall market, AVON PRODUCTS's return on equity significantly trails that of both the industry average and the S&P 500.
  • AVP'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 69.34%, 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.
  • Net operating cash flow has decreased to $88.20 million or 16.39% when compared to the same quarter last year. Despite a decrease in cash flow of 16.39%, AVON PRODUCTS is still significantly exceeding the industry average of -84.44%.
  • AVP, with its decline in revenue, underperformed when compared the industry average of 0.4%. Since the same quarter one year prior, revenues fell by 16.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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Time

Dividend Yield: 4.40%

Time (NYSE: TIME) shares currently have a dividend yield of 4.40%.

Time Inc., together with its subsidiaries, operates as a media company that publishes magazines in the United States, the United Kingdom, and internationally.

The average volume for Time has been 890,800 shares per day over the past 30 days. Time has a market cap of $1.9 billion and is part of the media industry. Shares are down 33.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Time as a sell. The company's weaknesses can be seen in multiple areas, such as its 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:
  • 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 Media industry. The net income has significantly decreased by 2002.1% when compared to the same quarter one year ago, falling from $48.00 million to -$913.00 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 Media industry and the overall market, TIME 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 $84.00 million or 6.66% 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.
  • The share price of TIME INC has not done very well: it is down 19.85% 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. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • TIME, with its decline in revenue, underperformed when compared the industry average of 6.7%. Since the same quarter one year prior, revenues slightly dropped by 5.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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