3 Sell-Rated Dividend Stocks: KCAP, RSO, SSI

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: 15.20%

KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 15.20%.

KCAP Financial, Inc. is a business development company specializing in investments in debt securities portfolio, asset manager affiliates, and CLO fund securities.

The average volume for KCAP Financial has been 123,700 shares per day over the past 30 days. KCAP Financial has a market cap of $146.6 million and is part of the financial services industry. Shares are down 2.5% 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 26.86%, 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 24.3%. 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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Resource Capital

Dividend Yield: 13.00%

Resource Capital (NYSE: RSO) shares currently have a dividend yield of 13.00%.

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 184,300 shares per day over the past 30 days. Resource Capital has a market cap of $404.3 million and is part of the real estate industry. Shares are up 2% year-to-date as of the close of trading on Monday.

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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 underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. 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 17.21% 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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Stage Stores

Dividend Yield: 11.00%

Stage Stores (NYSE: SSI) shares currently have a dividend yield of 11.00%.

Stage Stores, Inc. operates as a specialty department store retailer in small and mid-sized towns and communities in the United States. Its merchandise portfolio comprises moderately priced brand name and private label apparel, accessories, cosmetics, footwear, and home goods.

The average volume for Stage Stores has been 541,700 shares per day over the past 30 days. Stage Stores has a market cap of $147.8 million and is part of the retail industry. Shares are down 38.8% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Stage Stores 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, 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 Specialty Retail industry. The net income has significantly decreased by 79.0% when compared to the same quarter one year ago, falling from -$8.64 million to -$15.46 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 Specialty Retail industry and the overall market, STAGE STORES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for STAGE STORES INC is currently lower than what is desirable, coming in at 25.48%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -4.64% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 70.47%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 111.11% 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.
  • STAGE STORES 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, STAGE STORES INC reported lower earnings of $0.17 versus $1.17 in the prior year. This year, the market expects an improvement in earnings ($0.20 versus $0.17).

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