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."

Bank of Nova Scotia

Dividend Yield: 5.00%

Bank of Nova Scotia (NYSE: BNS) shares currently have a dividend yield of 5.00%.

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 9.32.

The average volume for Bank of Nova Scotia has been 796,000 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $48.7 billion and is part of the banking industry. Shares are down 27.4% year-to-date as of the close of trading on Wednesday.

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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 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 -$7,712.00 million or 237.15% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • BNS'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 26.67%, 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 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, BANK OF NOVA SCOTIA's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for BANK OF NOVA SCOTIA is currently very high, coming in at 72.71%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 22.40% trails the industry average.
  • BANK OF NOVA SCOTIA has improved earnings per share by 31.8% in the most recent quarter compared to the same quarter a year ago. Stable Earnings per share over the past year indicate the company has sound management over its earnings and share float. During the past fiscal year, BANK OF NOVA SCOTIA increased its bottom line by earning $5.67 versus $5.66 in the prior year.

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American Capital Agency

Dividend Yield: 13.40%

American Capital Agency (NASDAQ: AGNC) shares currently have a dividend yield of 13.40%.

American Capital Agency Corp. operates as a real estate investment trust (REIT) in the United States.

The average volume for American Capital Agency has been 3,317,900 shares per day over the past 30 days. American Capital Agency has a market cap of $6.2 billion and is part of the real estate industry. Shares are down 18.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates American Capital Agency 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 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 421.3% when compared to the same quarter one year ago, falling from $197.00 million to -$633.00 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 AGENCY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $199.00 million or 45.02% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of AMERICAN CAPITAL AGENCY CORP has not done very well: it is down 20.31% 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.
  • AMERICAN CAPITAL AGENCY 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. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMERICAN CAPITAL AGENCY CORP swung to a loss, reporting -$0.73 versus $3.17 in the prior year. This year, the market expects an improvement in earnings ($2.38 versus -$0.73).

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Men's Wearhouse

Dividend Yield: 4.70%

Men's Wearhouse (NYSE: MW) shares currently have a dividend yield of 4.70%.

The Men's Wearhouse, Inc. operates as a specialty apparel retailer in the United States, Puerto Rico, and Canada. The company operates in two segments, Retail and Corporate Apparel.

The average volume for Men's Wearhouse has been 2,307,100 shares per day over the past 30 days. Men's Wearhouse has a market cap of $745.5 million and is part of the retail industry. Shares are down 65.1% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Men's Wearhouse as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, 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 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 Specialty Retail industry. The net income has significantly decreased by 499.7% when compared to the same quarter one year ago, falling from $6.79 million to -$27.15 million.
  • Currently the debt-to-equity ratio of 1.68 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 0.37, which clearly demonstrates the inability to cover short-term cash needs.
  • 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 Specialty Retail industry and the overall market, MENS WEARHOUSE INC'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 $17.32 million or 61.62% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much 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 65.88%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 500.00% 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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