What To Sell: 3 Sell-Rated Dividend Stocks HSON, AJX, EARN

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."

Hudson Global

Dividend Yield: 7.80%

Hudson Global (NASDAQ: HSON) shares currently have a dividend yield of 7.80%.

Hudson Global, Inc. provides professional-level recruitment and related talent solutions for small to large-sized corporations and government agencies worldwide. The company has a P/E ratio of 51.40.

The average volume for Hudson Global has been 28,300 shares per day over the past 30 days. Hudson Global has a market cap of $88.6 million and is part of the diversified services industry. Shares are down 12% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Hudson Global as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, 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 Professional Services industry. The net income has significantly decreased by 195.7% when compared to the same quarter one year ago, falling from $2.74 million to -$2.63 million.
  • Net operating cash flow has significantly decreased to $0.80 million or 72.03% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • After a year of stock price fluctuations, the net result is that HSON's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Professional Services industry and the overall market, HUDSON GLOBAL INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • HSON, with its decline in revenue, underperformed when compared the industry average of 1.7%. Since the same quarter one year prior, revenues fell by 22.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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Great Ajax

Dividend Yield: 7.40%

Great Ajax (NYSE: AJX) shares currently have a dividend yield of 7.40%.

Great Ajax Corp. focuses primarily on acquiring, investing in, and managing a portfolio of re-performing and non-performing mortgage loans secured by single-family residences and single-family properties. The company has a P/E ratio of 7.75.

The average volume for Great Ajax has been 41,400 shares per day over the past 30 days. Great Ajax has a market cap of $207.6 million and is part of the real estate industry. Shares are up 9.2% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Great Ajax as a sell. The area that we feel has been the company's primary weakness has been its generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • AJX has underperformed the S&P 500 Index, declining 11.34% from its price level of one year ago.
  • When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, GREAT AJAX CORP's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for GREAT AJAX CORP is currently very high, coming in at 79.26%. It has increased significantly from the same period last year. Along with this, the net profit margin of 50.41% significantly outperformed against the industry average.
  • Net operating cash flow has fallen to -$5.03 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.

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Ellington Residential Mortgage REIT

Dividend Yield: 14.70%

Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 14.70%.

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 30,400 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $111.7 million and is part of the real estate industry. Shares are down 1.1% year-to-date as of the close of trading on Monday.

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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 8.1%. 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 26.14% to its most recent closing price of 12.24. 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.

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