What To Sell: 3 Sell-Rated Dividend Stocks AMTG, EARN, GOOD

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."

Apollo Residential Mortgage

Dividend Yield: 14.20%

Apollo Residential Mortgage (NYSE: AMTG) shares currently have a dividend yield of 14.20%.

Apollo Residential Mortgage, Inc. primarily invests in residential mortgage assets in the United States.

The average volume for Apollo Residential Mortgage has been 243,100 shares per day over the past 30 days. Apollo Residential Mortgage has a market cap of $431.2 million and is part of the real estate industry. Shares are up 13.4% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Apollo Residential Mortgage 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 160.9% when compared to the same quarter one year ago, falling from $21.41 million to -$13.03 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, APOLLO RESIDENTIAL MTG INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $6.18 million or 5.21% 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 APOLLO RESIDENTIAL MTG INC has not done very well: it is down 10.11% 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.
  • APOLLO RESIDENTIAL MTG 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, APOLLO RESIDENTIAL MTG INC swung to a loss, reporting -$0.82 versus $2.54 in the prior year. This year, the market expects an improvement in earnings ($1.98 versus -$0.82).

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Ellington Residential Mortgage REIT

Dividend Yield: 12.10%

Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 12.10%.

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 28,200 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $120.8 million and is part of the real estate industry. Shares are up 7.2% year-to-date as of the close of trading on Friday.

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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 8.05% 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 $2.09 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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Gladstone Commercial

Dividend Yield: 8.50%

Gladstone Commercial (NASDAQ: GOOD) shares currently have a dividend yield of 8.50%.

Gladstone Commercial Corporation operates as a real estate investment trust (REIT) in the United States. It engages in investing in and owning net leased industrial and commercial real properties, and making long-term industrial and commercial mortgage loans.

The average volume for Gladstone Commercial has been 134,500 shares per day over the past 30 days. Gladstone Commercial has a market cap of $413.7 million and is part of the real estate industry. Shares are up 21.4% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates Gladstone Commercial as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, GLADSTONE COMMERCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $8.78 million or 1.72% 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.
  • 43.03% is the gross profit margin for GLADSTONE COMMERCIAL CORP which we consider to be strong. Regardless of GOOD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GOOD's net profit margin of 3.96% is significantly lower than the industry average.
  • GLADSTONE COMMERCIAL CORP has improved earnings per share by 33.3% 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, GLADSTONE COMMERCIAL CORP continued to lose money by earning -$0.07 versus -$0.61 in the prior year. For the next year, the market is expecting a contraction of 7.1% in earnings (-$0.08 versus -$0.07).
  • After a year of stock price fluctuations, the net result is that GOOD'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. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.

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