What To Sell: 3 Sell-Rated Dividend Stocks ENB, TU, KMI

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."

Enbridge

Dividend Yield: 4.80%

Enbridge (NYSE: ENB) shares currently have a dividend yield of 4.80%.

Enbridge Inc. operates as an energy transportation and distribution company in the United States and Canada. Its Liquids Pipelines segment operates common carrier and contract crude oil, natural gas liquids (NGL), and refined products pipelines and terminals. The company has a P/E ratio of 189.60.

The average volume for Enbridge has been 1,857,100 shares per day over the past 30 days. Enbridge has a market cap of $26.2 billion and is part of the energy industry. Shares are down 5.8% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Enbridge 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, generally disappointing historical performance in the stock itself and poor profit margins.

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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 3735.7% when compared to the same quarter one year ago, falling from -$14.00 million to -$537.00 million.
  • The debt-to-equity ratio is very high at 2.26 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, ENBRIDGE INC underperformed against that of the industry average and is significantly less than that of 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 30.74%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 620.00% 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.
  • The gross profit margin for ENBRIDGE INC is currently extremely low, coming in at 10.19%. Regardless of ENB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -6.45% trails the industry average.

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TELUS

Dividend Yield: 5.10%

TELUS (NYSE: TU) shares currently have a dividend yield of 5.10%.

TELUS Corporation provides a range of telecommunications products and services in Canada. The company operates in two segments, Wireless and Wireline. The company has a P/E ratio of 14.16.

The average volume for TELUS has been 296,000 shares per day over the past 30 days. TELUS has a market cap of $15.2 billion and is part of the telecommunications industry. Shares are down 6.8% year-to-date as of the close of trading on Thursday.

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

Highlights from the ratings report include:
  • Net operating cash flow has declined marginally to $1,018.00 million or 1.83% 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 the current debt-to-equity ratio of 1.59, it is still below the industry average, suggesting that this level of debt is acceptable within the Diversified Telecommunication Services industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.33 is very low and demonstrates very weak liquidity.
  • TU'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 26.66%, 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. 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.
  • 35.18% is the gross profit margin for TELUS CORP which we consider to be strong. Regardless of TU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TU's net profit margin of 11.62% compares favorably to the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELUS CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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Kinder Morgan

Dividend Yield: 16.30%

Kinder Morgan (NYSE: KMI) shares currently have a dividend yield of 16.30%.

Kinder Morgan, Inc. operates as an energy infrastructure and energy company in North America. The company operates through Natural Gas Pipelines, CO2, Terminals, Products Pipelines, Kinder Morgan Canada, and Other segments. The company has a P/E ratio of 26.69.

The average volume for Kinder Morgan has been 41,868,100 shares per day over the past 30 days. Kinder Morgan has a market cap of $28.0 billion and is part of the energy industry. Shares are down 7% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Kinder Morgan as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, deteriorating net income, generally high debt management risk, disappointing return on equity and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 71.29%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 462.50% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, KMI is still more expensive than most of the other companies in its industry.
  • 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 584.9% when compared to the same quarter one year ago, falling from $126.00 million to -$611.00 million.
  • The debt-to-equity ratio of 1.23 is relatively high when compared with the industry average, suggesting a need for better debt level management.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, KINDER MORGAN INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • KINDER MORGAN 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 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, KINDER MORGAN INC reported lower earnings of $0.14 versus $0.95 in the prior year. This year, the market expects an improvement in earnings ($0.74 versus $0.14).

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