3 Sell-Rated Dividend Stocks: KCAP, AMID, LADR

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: 14.60%

KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 14.60%.

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 126,800 shares per day over the past 30 days. KCAP Financial has a market cap of $152.9 million and is part of the financial services industry. Shares are up 2.7% year-to-date as of the close of trading on Thursday.

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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 25.98%, 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).
  • KCAP, with its decline in revenue, slightly underperformed the industry average of 13.7%. 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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American Midstream Partners

Dividend Yield: 13.80%

American Midstream Partners (NYSE: AMID) shares currently have a dividend yield of 13.80%.

American Midstream Partners, LP engages in gathering, treating, processing, and transporting natural gas in the United States. The company has a P/E ratio of 2.05.

The average volume for American Midstream Partners has been 195,900 shares per day over the past 30 days. American Midstream Partners has a market cap of $370.8 million and is part of the energy industry. Shares are up 48% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates American Midstream 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, disappointing return on equity, poor profit margins and weak operating cash flow.

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 578.3% when compared to the same quarter one year ago, falling from $0.83 million to -$3.95 million.
  • The debt-to-equity ratio is very high at 2.13 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.16, which clearly demonstrates the inability to cover short-term cash needs.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, AMERICAN MIDSTREAM PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for AMERICAN MIDSTREAM PRTNRS LP is currently extremely low, coming in at 10.80%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -8.58% is significantly below that of the industry average.
  • Net operating cash flow has declined marginally to $8.22 million or 9.72% when compared to the same quarter last year. Despite a decrease in cash flow AMERICAN MIDSTREAM PRTNRS LP is still fairing well by exceeding its industry average cash flow growth rate of -49.98%.

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Ladder Capital

Dividend Yield: 8.40%

Ladder Capital (NYSE: LADR) shares currently have a dividend yield of 8.40%.

Ladder Capital Corp operates as a real estate investment trust in the United States. The company operates through three segments: Loans, Securities, and Real Estate. The company has a P/E ratio of 11.10.

The average volume for Ladder Capital has been 224,200 shares per day over the past 30 days. Ladder Capital has a market cap of $1.4 billion and is part of the real estate industry. Shares are up 4.9% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Ladder Capital as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in 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 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 160.4% when compared to the same quarter one year ago, falling from $9.18 million to -$5.54 million.
  • The share price of LADDER CAPITAL CORP has not done very well: it is down 19.56% 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 return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, LADDER CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for LADDER CAPITAL CORP is rather high; currently it is at 63.73%. Regardless of LADR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LADR's net profit margin of -5.68% significantly underperformed when compared to the industry average.
  • The revenue fell significantly faster than the industry average of 12.1%. Since the same quarter one year prior, revenues fell by 26.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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