3 Sell-Rated Dividend Stocks: KCAP, EARN, MVC

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."

KCAP Financial

Dividend Yield: 19.40%

KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 19.40%.

KCAP Financial, Inc. is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies.

The average volume for KCAP Financial has been 164,700 shares per day over the past 30 days. KCAP Financial has a market cap of $115.0 million and is part of the financial services industry. Shares are down 18.7% year-to-date as of the close of trading on Monday.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

TheStreet Ratings rates KCAP Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, 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 Capital Markets industry. The net income has significantly decreased by 294.9% when compared to the same quarter one year ago, falling from $8.24 million to -$16.05 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 Capital Markets industry and the overall market, KCAP FINANCIAL INC'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 60.66%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 286.95% 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.
  • KCAP FINANCIAL 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, KCAP FINANCIAL INC reported lower earnings of $0.43 versus $0.53 in the prior year. This year, the market expects an improvement in earnings ($0.68 versus $0.43).
  • Net operating cash flow has slightly increased to $11.02 million or 6.26% when compared to the same quarter last year. Despite an increase in cash flow of 6.26%, KCAP FINANCIAL INC is still growing at a significantly lower rate than the industry average of 142.81%.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

Ellington Residential Mortgage REIT

Dividend Yield: 14.40%

Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 14.40%.

Ellington Residential Mortgage REIT, a real estate investment trust, specializes in acquiring, investing in, and managing residential mortgage-and real estate-related assets.

The average volume for Ellington Residential Mortgage REIT has been 49,700 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $114.1 million and is part of the real estate industry. Shares are up 0.8% year-to-date as of the close of trading on Monday.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

TheStreet Ratings rates Ellington Residential Mortgage REIT as a sell. Among the areas we feel are negative, one of the most important has been an overall disappointing return on equity.

Highlights from the ratings report include:
  • 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, ELLINGTON RESIDENTIAL MTG's return on equity significantly trails that of both the industry average and the S&P 500.
  • EARN, with its decline in revenue, underperformed when compared the industry average of 8.0%. Since the same quarter one year prior, revenues fell by 21.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Compared to where it was trading one year ago, EARN is down 25.00% to its most recent closing price of 12.45. Looking ahead, our view is that this stock still does not have good upside potential and may even suffer further declines.
  • ELLINGTON RESIDENTIAL MTG reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ELLINGTON RESIDENTIAL MTG reported lower earnings of $0.00 versus $1.77 in the prior year. This year, the market expects an increase in earnings to $2.13 from $0.00.
  • The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 87.22%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, EARN's net profit margin of 10.50% significantly trails the industry average.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

MVC Capital

Dividend Yield: 7.60%

MVC Capital (NYSE: MVC) shares currently have a dividend yield of 7.60%.

MVC Capital, Inc. The company has a P/E ratio of 29.50.

The average volume for MVC Capital has been 56,100 shares per day over the past 30 days. MVC Capital has a market cap of $160.7 million and is part of the financial services industry. Shares are down 2.2% year-to-date as of the close of trading on Monday.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

TheStreet Ratings rates MVC Capital 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:
  • MVC 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, MVC CAPITAL INC swung to a loss, reporting -$0.88 versus $0.82 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 903.2% when compared to the same quarter one year ago, falling from $1.74 million to -$13.96 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 Capital Markets industry and the overall market, MVC 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 $11.38 million or 89.73% 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 29.98%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 971.42% 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.

EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE.

Other helpful dividend tools from TheStreet: