What To Sell: 3 Sell-Rated Dividend Stocks STON, JCS, SNR

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."

Stonemor Partners

Dividend Yield: 10.80%

Stonemor Partners (NYSE: STON) shares currently have a dividend yield of 10.80%.

StoneMor Partners L.P., together with its subsidiaries, owns and operates cemeteries in the United States. It operates through two segments, Cemetery Operations and Funeral Homes.

The average volume for Stonemor Partners has been 186,600 shares per day over the past 30 days. Stonemor Partners has a market cap of $797.3 million and is part of the diversified services industry. Shares are down 10.9% year-to-date as of the close of trading on Monday.

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

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 Diversified Consumer Services industry and the overall market, STONEMOR PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Currently the debt-to-equity ratio of 1.74 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, STON has managed to keep a strong quick ratio of 2.33, which demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly decreased to -$7.97 million or 110.23% when compared to the same quarter last year. Despite a decrease in cash flow of 110.23%, STONEMOR PARTNERS LP is still significantly exceeding the industry average of -193.63%.
  • STON has underperformed the S&P 500 Index, declining 19.61% 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.
  • 46.06% is the gross profit margin for STONEMOR PARTNERS LP which we consider to be strong. Regardless of STON's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, STON's net profit margin of -8.97% significantly underperformed when compared to the industry average.

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Communications Systems

Dividend Yield: 9.40%

Communications Systems (NASDAQ: JCS) shares currently have a dividend yield of 9.40%.

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 8,500 shares per day over the past 30 days. Communications Systems has a market cap of $59.8 million and is part of the telecommunications industry. Shares are down 12.2% 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, 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 Communications Equipment industry. The net income has significantly decreased by 457.3% when compared to the same quarter one year ago, falling from -$1.03 million to -$5.74 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 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 40.67%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 450.00% 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.
  • COMMUNICATIONS SYSTEMS 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, COMMUNICATIONS SYSTEMS INC swung to a loss, reporting -$1.11 versus $0.23 in the prior year. This year, the market expects an improvement in earnings (-$0.29 versus -$1.11).
  • JCS's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues slightly increased by 1.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

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New Senior Investment Group

Dividend Yield: 10.90%

New Senior Investment Group (NYSE: SNR) shares currently have a dividend yield of 10.90%.

New Senior Investment Group Inc. (NYSE:SNR.WI) operates independently of Newcastle Investment Corp. as of November 6, 2014.

The average volume for New Senior Investment Group has been 666,300 shares per day over the past 30 days. New Senior Investment Group has a market cap of $780.9 million and is part of the real estate industry. Shares are up 0.5% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates New Senior Investment Group as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, poor profit margins, 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 65.8% when compared to the same quarter one year ago, falling from -$13.28 million to -$22.02 million.
  • The gross profit margin for NEW SENIOR INVESTMENT GROUP is currently extremely low, coming in at 3.29%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -18.59% 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 43.65%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 30.00% 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.
  • NEW SENIOR INVESTMENT GROUP's earnings per share declined by 30.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, NEW SENIOR INVESTMENT GROUP reported poor results of -$1.11 versus -$0.37 in the prior year. This year, the market expects an improvement in earnings (-$0.82 versus -$1.11).
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, NEW SENIOR INVESTMENT GROUP's return on equity significantly trails that of both the industry average and the S&P 500.

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