3 Sell-Rated Dividend Stocks: AJX, MITT, RSO

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."

Great Ajax

Dividend Yield: 7.20%

Great Ajax (NYSE: AJX) shares currently have a dividend yield of 7.20%.

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 7.31.

The average volume for Great Ajax has been 78,400 shares per day over the past 30 days. Great Ajax has a market cap of $221.3 million and is part of the real estate industry. Shares are up 14.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Great Ajax as a sell. Among the areas we feel are negative, one of the most important has been weak operating cash flow.

Highlights from the ratings report include:
  • Net operating cash flow has significantly decreased to -$4.13 million or 634.67% 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 AJX'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.
  • GREAT AJAX CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, GREAT AJAX CORP increased its bottom line by earning $1.62 versus $0.22 in the prior year. This year, the market expects an improvement in earnings ($2.18 versus $1.62).
  • 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 110.2% when compared to the same quarter one year prior, rising from $3.64 million to $7.65 million.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, GREAT AJAX CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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AG Mortgage Investment

Dividend Yield: 13.10%

AG Mortgage Investment (NYSE: MITT) shares currently have a dividend yield of 13.10%.

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 143,500 shares per day over the past 30 days. AG Mortgage Investment has a market cap of $407.9 million and is part of the real estate industry. Shares are up 11.7% year-to-date as of the close of trading on Tuesday.

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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 16.44% 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 ($1.78 versus $0.01).

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Resource Capital

Dividend Yield: 13.20%

Resource Capital (NYSE: RSO) shares currently have a dividend yield of 13.20%.

Resource Capital Corp., a diversified real estate investment trust, primarily focuses on originating, holding, and managing commercial mortgage loans and other commercial real estate-related debt and equity investments in the United States.

The average volume for Resource Capital has been 183,400 shares per day over the past 30 days. Resource Capital has a market cap of $396.5 million and is part of the real estate industry. Shares are down 2.7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Resource Capital 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 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 compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income has decreased by 8.9% when compared to the same quarter one year ago, dropping from $15.49 million to $14.11 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 Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$18.29 million or 287.81% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • RSO has underperformed the S&P 500 Index, declining 16.93% 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.
  • RSO, with its decline in revenue, underperformed when compared the industry average of 11.9%. Since the same quarter one year prior, revenues fell by 16.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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