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."

Hatteras Financial

Dividend Yield: 13.60%

Hatteras Financial (NYSE: HTS) shares currently have a dividend yield of 13.60%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States.

The average volume for Hatteras Financial has been 887,200 shares per day over the past 30 days. Hatteras Financial has a market cap of $1.3 billion and is part of the real estate industry. Shares are down 27.7% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Hatteras Financial 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 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 207.7% when compared to the same quarter one year ago, falling from $77.89 million to -$83.89 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, HATTERAS FINANCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 29.61%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 224.00% compared to the year-earlier 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.
  • HTS, with its decline in revenue, slightly underperformed the industry average of 6.1%. Since the same quarter one year prior, revenues slightly dropped by 3.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for HATTERAS FINANCIAL CORP is currently very high, coming in at 86.25%. Regardless of HTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTS's net profit margin of -106.94% significantly underperformed when compared to the industry average.

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Archrock

Dividend Yield: 6.00%

Archrock (NYSE: AROC) shares currently have a dividend yield of 6.00%.

Archrock, Inc. provides natural gas contract compression services to customers in the oil and natural gas industry in the United States.

The average volume for Archrock has been 1,369,400 shares per day over the past 30 days. Archrock has a market cap of $698.6 million and is part of the energy industry. Shares are down 56.1% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Archrock 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, generally high debt management risk 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 Energy Equipment & Services industry. The net income has significantly decreased by 118.8% when compared to the same quarter one year ago, falling from $33.80 million to -$6.35 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. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, ARCHROCK INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Net operating cash flow has decreased to $128.49 million or 18.42% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ARCHROCK INC has marginally lower results.
  • The debt-to-equity ratio of 1.14 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, AROC's quick ratio is somewhat strong at 1.13, demonstrating the ability to handle short-term liquidity needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 61.89%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 260.86% 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.

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Precision Drilling

Dividend Yield: 5.70%

Precision Drilling (NYSE: PDS) shares currently have a dividend yield of 5.70%.

Precision Drilling Corporation provides oil and natural gas drilling and related services and products. The company operates through two segments, Contract Drilling Services; and Completion and Production Services.

The average volume for Precision Drilling has been 2,915,900 shares per day over the past 30 days. Precision Drilling has a market cap of $1.1 billion and is part of the energy industry. Shares are down 38.8% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Precision Drilling 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, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • PRECISION DRILLING 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, PRECISION DRILLING CORP reported lower earnings of $0.12 versus $0.67 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 Energy Equipment & Services industry. The net income has significantly decreased by 264.2% when compared to the same quarter one year ago, falling from $52.81 million to -$86.70 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 Energy Equipment & Services industry and the overall market, PRECISION DRILLING CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $61.05 million or 58.39% 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 41.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 266.66% compared to the year-earlier 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.

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