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."

Bank of Nova Scotia

Dividend Yield: 4.60%

Bank of Nova Scotia (NYSE: BNS) shares currently have a dividend yield of 4.60%.

The Bank of Nova Scotia provides various personal, commercial, corporate, and investment banking services in Canada and internationally. The company has a P/E ratio of 10.99.

The average volume for Bank of Nova Scotia has been 959,800 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $58.6 billion and is part of the banking industry. Shares are up 19.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Bank of Nova Scotia as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income 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 underperformed when compared to that of the S&P 500 and the Commercial Banks industry average. The net income has decreased by 13.3% when compared to the same quarter one year ago, dropping from $1,757.00 million to $1,523.00 million.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, BNS has underperformed the S&P 500 Index, declining 5.08% 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.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market, BANK OF NOVA SCOTIA's return on equity exceeds that of both the industry average and the S&P 500.
  • BANK OF NOVA SCOTIA's earnings per share declined by 13.4% in the most recent quarter compared to the same quarter a year ago. Stable Earnings per share over the past year indicate the company has sound management over its earnings and share float. During the past fiscal year, BANK OF NOVA SCOTIA increased its bottom line by earning $5.67 versus $5.66 in the prior year.
  • The gross profit margin for BANK OF NOVA SCOTIA is rather high; currently it is at 69.74%. Regardless of BNS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 17.97% trails the industry average.

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Energy Company of Minas Gerais

Dividend Yield: 4.40%

Energy Company of Minas Gerais (NYSE: CIG) shares currently have a dividend yield of 4.40%.

Companhia Energetica de Minas Gerais S.A., through its subsidiaries, engages in the generation, transformation, transmission, distribution, and sale of electric energy primarily in Minas Gerais, Brazil.

The average volume for Energy Company of Minas Gerais has been 4,583,400 shares per day over the past 30 days. Energy Company of Minas Gerais has a market cap of $2.8 billion and is part of the utilities industry. Shares are up 42.7% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Energy Company of Minas Gerais as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • CIA ENERGETICA DE MINAS's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, CIA ENERGETICA DE MINAS reported lower earnings of $1.41 versus $1.84 in the prior year. For the next year, the market is expecting a contraction of 78.3% in earnings ($0.31 versus $1.41).
  • 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 Electric Utilities industry. The net income has significantly decreased by 47.7% when compared to the same quarter one year ago, falling from $349.44 million to $182.71 million.
  • The gross profit margin for CIA ENERGETICA DE MINAS is rather low; currently it is at 22.92%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 10.28% trails that of the industry average.
  • Net operating cash flow has significantly decreased to $314.63 million or 56.11% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 42.00%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 50.00% 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.

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Carlyle Group

Dividend Yield: 6.70%

Carlyle Group (NASDAQ: CG) shares currently have a dividend yield of 6.70%.

The Carlyle Group LP is an investment firm specializing in direct and fund of fund investments.

The average volume for Carlyle Group has been 512,300 shares per day over the past 30 days. Carlyle Group has a market cap of $5.1 billion and is part of the financial services industry. Shares are up 2% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Carlyle Group 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, 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 Capital Markets industry. The net income has significantly decreased by 78.7% when compared to the same quarter one year ago, falling from $39.50 million to $8.40 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, CARLYLE GROUP LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for CARLYLE GROUP LP is rather low; currently it is at 19.09%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 1.73% significantly trails the industry average.
  • Net operating cash flow has significantly decreased to $19.70 million or 98.66% when compared to the same quarter last year. Despite a decrease in cash flow of 98.66%, CARLYLE GROUP LP is still significantly exceeding the industry average of -199.13%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 42.35%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 98.14% 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.

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