3 Sell-Rated Dividend Stocks: KCAP, MITT, CIO

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: 15.90%

KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 15.90%.

KCAP Financial, Inc. is a business development company specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies.

The average volume for KCAP Financial has been 107,400 shares per day over the past 30 days. KCAP Financial has a market cap of $140.2 million and is part of the financial services industry. Shares are down 10.8% year-to-date as of the close of trading on Monday.

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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 189.2% when compared to the same quarter one year ago, falling from $7.67 million to -$6.84 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 38.22%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 190.00% 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.
  • 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 swung to a loss, reporting -$0.51 versus $0.43 in the prior year. This year, the market expects an improvement in earnings ($0.54 versus -$0.51).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 24.4%. Since the same quarter one year prior, revenues fell by 22.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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AG Mortgage Investment

Dividend Yield: 13.60%

AG Mortgage Investment (NYSE: MITT) shares currently have a dividend yield of 13.60%.

AG Mortgage Investment Trust, Inc., a real estate investment trust, focuses on investing in, acquiring, and managing a portfolio of residential mortgage assets, other real estate-related securities, and financial assets.

The average volume for AG Mortgage Investment has been 143,200 shares per day over the past 30 days. AG Mortgage Investment has a market cap of $392.7 million and is part of the real estate industry. Shares are up 6.6% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates AG Mortgage Investment 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 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 119.2% when compared to the same quarter one year ago, falling from $12.76 million to -$2.45 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, AG MORTGAGE INVESTMENT TRUST's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $14.65 million or 37.11% 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.
  • The share price of AG MORTGAGE INVESTMENT TRUST has not done very well: it is down 22.34% 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.
  • AG MORTGAGE INVESTMENT TRUST 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, AG MORTGAGE INVESTMENT TRUST reported lower earnings of $0.01 versus $3.38 in the prior year. This year, the market expects an improvement in earnings ($1.72 versus $0.01).

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City Office REIT

Dividend Yield: 7.50%

City Office REIT (NYSE: CIO) shares currently have a dividend yield of 7.50%.

City Office REIT, Inc is an equity real estate investment trust. The fund invests in the real estate markets of the United States. It acquires, own and operate high-quality office properties. City Office REIT, Inc was formed in November 26, 2013 and is domiciled in the United States.

The average volume for City Office REIT has been 255,100 shares per day over the past 30 days. City Office REIT has a market cap of $266.6 million and is part of the real estate industry. Shares are up 3% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates City Office REIT as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins 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 858.1% when compared to the same quarter one year ago, falling from -$0.74 million to -$7.12 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, CITY OFFICE REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for CITY OFFICE REIT INC is rather low; currently it is at 21.24%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -43.74% is significantly below that of the industry average.
  • CITY OFFICE REIT 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CITY OFFICE REIT INC continued to lose money by earning -$0.53 versus -$0.60 in the prior year. For the next year, the market is expecting a contraction of 30.2% in earnings (-$0.69 versus -$0.53).
  • After a year of stock price fluctuations, the net result is that CIO'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. 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.

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