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: 11.50%

Capstead Mortgage (NYSE: CMO) shares currently have a dividend yield of 11.50%.

Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 8.80.

The average volume for Capstead Mortgage has been 809,000 shares per day over the past 30 days. Capstead Mortgage has a market cap of $868.2 million and is part of the real estate industry. Shares are up 1.9% year-to-date as of the close of trading on Thursday.

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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, 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 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 35.0% when compared to the same quarter one year ago, falling from $32.39 million to $21.07 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.
  • Net operating cash flow has declined marginally to $55.06 million or 3.12% 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 26.88%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 40.00% 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.
  • CAPSTEAD MORTGAGE CORP's earnings per share declined by 40.0% 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 28.6% in earnings ($0.95 versus $1.33).

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Crossroads Capital

Dividend Yield: 19.20%

Crossroads Capital (NASDAQ: XRDC) shares currently have a dividend yield of 19.20%.

Crossroads Capital, Inc., formerly known as BDCA Venture, Inc., is a close-ended business development company specializing in later stage, emerging growth, growth capital, secured and unsecured debt, pre-IPO and secondary purchase investments.

The average volume for Crossroads Capital has been 17,400 shares per day over the past 30 days. Crossroads Capital has a market cap of $30.3 million and is part of the financial services industry. Shares are down 4.4% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Crossroads Capital as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, unimpressive growth in 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:
  • CROSSROADS CAPITAL INC 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 suffered a declining pattern earnings per share over the past two years. During the past fiscal year, CROSSROADS CAPITAL INC swung to a loss, reporting -$0.09 versus $0.26 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 Capital Markets industry. The net income has significantly decreased by 63.7% when compared to the same quarter one year ago, falling from -$3.06 million to -$5.00 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 Capital Markets industry and the overall market, CROSSROADS CAPITAL 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 -$1.01 million or 140.60% 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 34.96%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 64.51% 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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Communications Systems

Dividend Yield: 8.10%

Communications Systems (NASDAQ: JCS) shares currently have a dividend yield of 8.10%.

Communications Systems, Inc., together with its subsidiaries, manufactures and sells modular connecting and wiring devices, digital subscriber line filters, structured wiring systems, and media and rate conversion products primarily in North America, Europe, the Middle East, and Africa.

The average volume for Communications Systems has been 6,000 shares per day over the past 30 days. Communications Systems has a market cap of $69.3 million and is part of the telecommunications industry. Shares are up 1.9% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Communications Systems as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, 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 underperformed when compared to that of the S&P 500 and the Communications Equipment industry average. The net income has decreased by 24.3% when compared to the same quarter one year ago, dropping from $1.70 million to $1.28 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 Communications Equipment industry and the overall market, COMMUNICATIONS SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for COMMUNICATIONS SYSTEMS INC is currently lower than what is desirable, coming in at 34.86%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.98% significantly trails the industry average.
  • Net operating cash flow has significantly decreased to $0.20 million or 94.35% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Looking at the price performance of JCS's shares over the past 12 months, there is not much good news to report: the stock is down 28.30%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than 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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