3 Sell-Rated Dividend Stocks: ARR, HTS, CPG

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."

ARMOUR Residential REIT

Dividend Yield: 19.10%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 19.10%.

ARMOUR Residential REIT, Inc. invests in residential mortgage backed securities in the United States. The company is managed by ARMOUR Capital Management LP.

The average volume for ARMOUR Residential REIT has been 773,800 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $759.0 million and is part of the real estate industry. Shares are down 5.5% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates ARMOUR Residential REIT 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 decreased to $57.77 million or 47.44% 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.
  • ARR has underperformed the S&P 500 Index, declining 20.66% from its price level of one year ago. 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.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The revenue fell significantly faster than the industry average of 8.0%. Since the same quarter one year prior, revenues fell by 28.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for ARMOUR RESIDENTIAL REIT INC is currently very high, coming in at 87.77%. Regardless of ARR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ARR's net profit margin of 156.44% significantly outperformed against the industry.

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Hatteras Financial

Dividend Yield: 12.60%

Hatteras Financial (NYSE: HTS) shares currently have a dividend yield of 12.60%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States. The company has a P/E ratio of 45.23.

The average volume for Hatteras Financial has been 1,414,000 shares per day over the past 30 days. Hatteras Financial has a market cap of $1.3 billion and is part of the real estate industry. Shares are up 7% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Hatteras Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, HATTERAS FINANCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • HTS has underperformed the S&P 500 Index, declining 22.42% from its price level of one year ago. 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.
  • HATTERAS FINANCIAL CORP 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, HATTERAS FINANCIAL CORP reported lower earnings of $0.31 versus $0.36 in the prior year. This year, the market expects an improvement in earnings ($1.73 versus $0.31).
  • The gross profit margin for HATTERAS FINANCIAL CORP is currently very high, coming in at 84.50%. Regardless of HTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTS's net profit margin of 124.37% significantly outperformed against the industry.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 662.8% when compared to the same quarter one year prior, rising from -$25.85 million to $145.49 million.

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Crescent Point Energy

Dividend Yield: 6.20%

Crescent Point Energy (NYSE: CPG) shares currently have a dividend yield of 6.20%.

Crescent Point Energy Corp. acquires, explores, develops, and produces oil and natural gas properties in Western Canada and the United States.

The average volume for Crescent Point Energy has been 1,242,000 shares per day over the past 30 days. Crescent Point Energy has a market cap of $7.1 billion and is part of the energy industry. Shares are up 12.4% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Crescent Point Energy 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 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 178.0% when compared to the same quarter one year ago, falling from $258.06 million to -$201.37 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, CRESCENT POINT ENERGY CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Despite currently having a low debt-to-equity ratio of 0.42, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that CPG's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.51 is low and demonstrates weak liquidity.
  • Net operating cash flow has declined marginally to $547.19 million or 6.15% when compared to the same quarter last year. Despite a decrease in cash flow CRESCENT POINT ENERGY CORP is still fairing well by exceeding its industry average cash flow growth rate of -39.44%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 45.71%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 166.66% 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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