What To Sell: 3 Sell-Rated Dividend Stocks NGL, BNS, ARR

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."

NGL Energy Partners

Dividend Yield: 8.30%

NGL Energy Partners (NYSE: NGL) shares currently have a dividend yield of 8.30%.

NGL Energy Partners LP, through its subsidiaries, engages in the crude oil logistics, water solutions, liquids, retail propane, and refined products and renewables businesses in the United States.

The average volume for NGL Energy Partners has been 1,140,700 shares per day over the past 30 days. NGL Energy Partners has a market cap of $2.0 billion and is part of the energy industry. Shares are up 68.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates NGL Energy Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, weak operating cash flow, poor profit margins and disappointing return on equity.

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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 300.6% when compared to the same quarter one year ago, falling from $101.78 million to -$204.13 million.
  • Currently the debt-to-equity ratio of 1.76 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, NGL maintains a poor quick ratio of 0.80, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has significantly decreased to $58.36 million or 67.67% 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 gross profit margin for NGL ENERGY PARTNERS LP is currently extremely low, coming in at 10.75%. Regardless of NGL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NGL's net profit margin of -8.77% significantly underperformed when compared to the industry average.
  • 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. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NGL ENERGY PARTNERS LP's return on equity has significantly outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.

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Bank of Nova Scotia

Dividend Yield: 4.40%

Bank of Nova Scotia (NYSE: BNS) shares currently have a dividend yield of 4.40%.

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 11.34.

The average volume for Bank of Nova Scotia has been 930,600 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $60.4 billion and is part of the banking industry. Shares are up 24.3% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Bank of Nova Scotia as a sell. Among the areas we feel are negative, one of the most important has been generally deteriorating net income.

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.
  • 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.
  • After a year of stock price fluctuations, the net result is that BNS'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. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

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ARMOUR Residential REIT

Dividend Yield: 12.50%

ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 12.50%.

ARMOUR Residential REIT, Inc. invests in residential mortgage backed securities in the United States. The company is managed by ARMOUR Capital Management LP.

The average volume for ARMOUR Residential REIT has been 530,500 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $774.2 million and is part of the real estate industry. Shares are down 2.6% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates ARMOUR Residential REIT as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in 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 when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 122.7% when compared to the same quarter one year ago, falling from -$125.47 million to -$279.48 million.
  • 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, ARMOUR RESIDENTIAL REIT INC'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 -$208.71 million or 385.51% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of ARMOUR RESIDENTIAL REIT INC has not done very well: it is down 8.46% 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.
  • The revenue fell significantly faster than the industry average of 12.1%. Since the same quarter one year prior, revenues fell by 20.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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