What To Sell: 3 Sell-Rated Dividend Stocks QUAD, VHI, MEMP

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."

Quad/Graphics

Dividend Yield: 12.00%

Quad/Graphics (NYSE: QUAD) shares currently have a dividend yield of 12.00%.

Quad/Graphics, Inc., together with its subsidiaries, provides print and media solutions in the United States, Europe, and Latin America.

The average volume for Quad/Graphics has been 372,300 shares per day over the past 30 days. Quad/Graphics has a market cap of $496.6 million and is part of the diversified services industry. Shares are up 10.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Quad/Graphics 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, poor profit margins 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 Commercial Services & Supplies industry. The net income has significantly decreased by 2363.1% when compared to the same quarter one year ago, falling from $24.40 million to -$552.20 million.
  • The debt-to-equity ratio is very high at 3.37 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, QUAD maintains a poor quick ratio of 0.85, which illustrates the inability to avoid short-term cash problems.
  • 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 Commercial Services & Supplies industry and the overall market, QUAD/GRAPHICS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for QUAD/GRAPHICS INC is rather low; currently it is at 19.52%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -47.76% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 54.41%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 2400.00% 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.

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Valhi

Dividend Yield: 8.10%

Valhi (NYSE: VHI) shares currently have a dividend yield of 8.10%.

Valhi, Inc., through its subsidiaries, engages in the chemicals, component products, waste management, and real estate businesses worldwide.

The average volume for Valhi has been 67,400 shares per day over the past 30 days. Valhi has a market cap of $335.8 million and is part of the chemicals industry. Shares are down 25.5% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Valhi 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, 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 Chemicals industry. The net income has significantly decreased by 140.8% when compared to the same quarter one year ago, falling from $28.70 million to -$11.70 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 Chemicals industry and the overall market, VALHI INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for VALHI INC is rather low; currently it is at 17.54%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -3.05% is significantly below that of the industry average.
  • The debt-to-equity ratio is very high at 3.08 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, VHI has managed to keep a strong quick ratio of 1.72, which demonstrates the ability to cover short-term cash 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 83.62%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 137.50% 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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Memorial Production Partners

Dividend Yield: 17.50%

Memorial Production Partners (NASDAQ: MEMP) shares currently have a dividend yield of 17.50%.

Memorial Production Partners LP, through its subsidiary, engages in the acquisition, development, exploitation, and production of oil and natural gas properties.

The average volume for Memorial Production Partners has been 1,257,100 shares per day over the past 30 days. Memorial Production Partners has a market cap of $189.3 million and is part of the energy industry. Shares are down 17.1% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Memorial Production Partners 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 289.9% when compared to the same quarter one year ago, falling from $101.16 million to -$192.09 million.
  • The debt-to-equity ratio is very high at 3.17 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.38, which clearly demonstrates the inability to cover short-term cash needs.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, MEMORIAL PRODUCTION PRTRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $73.85 million or 15.81% when compared to the same quarter last year. Despite a decrease in cash flow MEMORIAL PRODUCTION PRTRS LP is still fairing well by exceeding its industry average cash flow growth rate of -38.77%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 88.70%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 266.18% 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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