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: 10.50%

ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 10.50%.

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 108.29.

The average volume for ZAIS Financial has been 25,400 shares per day over the past 30 days. ZAIS Financial has a market cap of $121.6 million and is part of the real estate industry. Shares are down 11.5% year-to-date as of the close of trading on Friday.

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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 625.3% when compared to the same quarter one year ago, falling from $1.15 million to -$6.04 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 Real Estate Investment Trusts (REITs) industry and the overall market, ZAIS FINANCIAL CORP's return on equity significantly trails 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 13.74% 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 37.1% in earnings ($1.83 versus $2.91).
  • ZFC, with its decline in revenue, underperformed when compared the industry average of 6.1%. Since the same quarter one year prior, revenues fell by 12.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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Independence Realty

Dividend Yield: 9.70%

Independence Realty (AMEX: IRT) shares currently have a dividend yield of 9.70%.

Independence Realty Trust, Inc is an equity real estate investment trust launched by RAIT Financial Trust. It is managed by Independence Realty Advisors, LLC. The fund invests in the real estate markets of the United States. It makes investments in apartment properties to create its portfolio. The company has a P/E ratio of 10.07.

The average volume for Independence Realty has been 208,700 shares per day over the past 30 days. Independence Realty has a market cap of $350.7 million and is part of the real estate industry. Shares are down 19.8% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Independence Realty as a sell. The area that we feel has been the company's primary weakness has been its generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • This stock's share value has moved by only 24.68% over the past year. 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.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, INDEPENDENCE REALTY TRUST's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for INDEPENDENCE REALTY TRUST is currently lower than what is desirable, coming in at 29.80%. Regardless of IRT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, IRT's net profit margin of 94.13% significantly outperformed against the industry.
  • INDEPENDENCE REALTY TRUST has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, INDEPENDENCE REALTY TRUST increased its bottom line by earning $0.19 versus $0.06 in the prior year. This year, the market expects an improvement in earnings ($0.67 versus $0.19).

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Hoegh LNG Partners

Dividend Yield: 9.40%

Hoegh LNG Partners (NYSE: HMLP) shares currently have a dividend yield of 9.40%.

Hoegh LNG Partners LP focuses on owning, operating, and acquiring floating storage and regasification units, liquefied natural gas (LNG) carriers, and other LNG infrastructure assets under long-term charters. Hoegh LNG GP LLC is the general partner of the company. The company has a P/E ratio of 45.03.

The average volume for Hoegh LNG Partners has been 31,600 shares per day over the past 30 days. Hoegh LNG Partners has a market cap of $189.6 million and is part of the transportation industry. Shares are down 29.3% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Hoegh LNG Partners as a sell. The area that we feel has been the company's primary weakness has been its generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • HMLP'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 35.33%, 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.
  • HMLP's debt-to-equity ratio of 0.84 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.99 is very high and demonstrates very strong liquidity.
  • Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, HOEGH LNG PARTNERS LP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The gross profit margin for HOEGH LNG PARTNERS LP is currently very high, coming in at 85.58%. It has increased significantly from the same period last year. Along with this, the net profit margin of 147.16% significantly outperformed against the industry average.
  • HOEGH LNG PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.26 versus $0.16).

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