What To Sell: 3 Sell-Rated Dividend Stocks IEP, EARN, SRLP

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."

Icahn

Dividend Yield: 10.90%

Icahn (NASDAQ: IEP) shares currently have a dividend yield of 10.90%.

Icahn Enterprises L.P., through its subsidiaries, operates in investment, automotive, energy, metals, railcar, gaming, mining, food packaging, real estate, and home fashion businesses in the United States, Germany, and Internationally.

The average volume for Icahn has been 100,100 shares per day over the past 30 days. Icahn has a market cap of $7.5 billion and is part of the conglomerates industry. Shares are down 10.7% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Icahn 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, 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 Industrial Conglomerates industry. The net income has significantly decreased by 619.9% when compared to the same quarter one year ago, falling from $161.00 million to -$837.00 million.
  • The debt-to-equity ratio is very high at 5.40 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
  • 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 Industrial Conglomerates industry and the overall market, ICAHN ENTERPRISES LP'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 41.00%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 588.97% 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.
  • ICAHN ENTERPRISES LP 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, ICAHN ENTERPRISES LP reported poor results of -$9.01 versus -$2.92 in the prior year. This year, the market expects an improvement in earnings (-$2.85 versus -$9.01).

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Ellington Residential Mortgage REIT

Dividend Yield: 13.90%

Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 13.90%.

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 27,300 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $118.2 million and is part of the real estate industry. Shares are up 4.9% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Ellington Residential Mortgage REIT 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 106.5% when compared to the same quarter one year ago, falling from $3.68 million to -$0.24 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 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.
  • The share price of ELLINGTON RESIDENTIAL MTG has not done very well: it is down 17.93% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
  • ELLINGTON RESIDENTIAL MTG 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 year. However, the consensus estimate suggests that this trend should reverse 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 $2.10 from $0.00.
  • EARN, with its decline in revenue, underperformed when compared the industry average of 11.9%. Since the same quarter one year prior, revenues slightly dropped by 6.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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Sprague Resources

Dividend Yield: 8.90%

Sprague Resources (NYSE: SRLP) shares currently have a dividend yield of 8.90%.

Sprague Resources LP engages in the purchase, storage, distribution, and sale of refined petroleum products and natural gas in the United States. The company operates through four segments: Refined Products, Natural Gas, Materials Handling, and Other Operations. The company has a P/E ratio of 8.06.

The average volume for Sprague Resources has been 48,100 shares per day over the past 30 days. Sprague Resources has a market cap of $510.0 million and is part of the energy industry. Shares are up 17.9% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Sprague Resources as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, generally high debt management risk, generally disappointing historical performance in the stock itself, weak operating cash flow and poor profit margins.

Highlights from the ratings report include:
  • SPRAGUE RESOURCES LP's earnings per share declined by 33.2% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SPRAGUE RESOURCES LP reported lower earnings of $3.69 versus $6.07 in the prior year. For the next year, the market is expecting a contraction of 32.4% in earnings ($2.50 versus $3.69).
  • The debt-to-equity ratio is very high at 3.00 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, SRLP maintains a poor quick ratio of 0.75, which illustrates the inability to avoid short-term cash problems.
  • The share price of SPRAGUE RESOURCES LP has not done very well: it is down 14.04% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
  • Net operating cash flow has declined marginally to $116.43 million or 4.88% when compared to the same quarter last year. Despite a decrease in cash flow SPRAGUE RESOURCES LP is still fairing well by exceeding its industry average cash flow growth rate of -49.05%.
  • The gross profit margin for SPRAGUE RESOURCES LP is currently extremely low, coming in at 9.19%. Regardless of SRLP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SRLP's net profit margin of 4.12% compares favorably to the industry average.

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