A roller-coaster ride for dividend investors.
Volatility on Wall Street led many investors to reassess their holdings, wondering which companies can weather the storm and which are doomed for continued declines. It’s often thought that dividend stocks are good safe havens, given their regular payouts to shareholders in both good times and bad. However, a 3 percent dividend is cold comfort if shares drop 30 percent — or worse, if the company slashes that dividend because it can’t afford to pay it. Here are nine companies that should set off warning bells and could be in store for more trouble.
General Electric Co. (NYSE: GE)
There was a time when GE was considered a stock for “widows and orphans,” an investment that was all but certain to deliver good returns over the long term. That time has clearly passed. General Electric slashed its dividend twice in nine years, including a 59 percent haircut last year. Shares are down almost 40 percent in the last five years while the broader Standard & Poor’s 500 index surged almost 70 percent. That’s hardly an encouraging track record. And as the company struggles to streamline its industrial business for a digital age, there’s little reason to expect this record of trouble to end any time soon.
Scana Corp. (SCG)
If you don’t live in the Carolinas, you may not have heard about the recent debacle at the energy company that includes a federal investigation into the failed construction of a nuclear power plant. Mismanagement and poor planning led to the elimination of 5,000 jobs and billions in waste. But the worst part is the South Carolina House recently voted that Scana can’t rely on higher customer charges to cover the bungled project. Theoretically, Scana pays a 61-cent quarterly dividend. But with shares headed down the tube and the prospects of a dividend cut to offset previous losses, investors shouldn’t trust that figure too much.
Nabors Industries (NBR)
Last year was decidedly rough for Nabors, with weak activity overall at the mid-sized offshore drilling company. That would be bad enough, but a series of rough years in the oil patch have led to chronic losses and a massive debt load that risks crippling NBR stock. Specifically, the company is valued at $2 billion but boasts about $4 billion in debt — all while it continues to bleed red ink, with no projected profits across 2018 despite a modest rebound in revenue. When you don’t have profits or a bunch of money in the bank, investors shouldn’t expect any cash to trickle down.
Kimco Realty Corp. (KIM)
Kimco is one of the largest operators of “open-air shopping centers” anchored by a discount retailer or grocery store. In common parlance, these sites are known as strip malls. Needless to say, in the age of Amazon.com (AMZN), it has been tough going for commercial real estate sites like this. Sure, it’s hard to supplant the local supermarket, but brick-and-mortar pet stores, electronics shops and apparel retailers have all been dealt some serious setbacks in the age of e-commerce. While the dividend isn’t necessarily going away soon, thanks to long-term leasing trends, Kimco stock is down more than 40 percent in the last year.
Macy’s (M)
If you think it’s tough for commercial real estate companies that are the landlords, imagine how difficult things are for an actual retail company. That’s what’s working against Macy’s now as the department store struggles to keep sales steady. Revenue has dropped off sharply lately, from $28.2 billion in fiscal 2015 to just $25.8 billion in 2017, an 8 percent decline. Worse, the dividend hasn’t budged since early 2016 and a Citigroup analyst recently warned the payouts were in jeopardy. An ugly 25 percent decline in the last 12 months should show you can still get burned by this stock — with or without the dividend.
Campbell Soup Co. (CPB)
Campbell Soup was once a powerful brand, but lags behind changing consumer tastes. The company recorded revenue of almost $8.3 billion in fiscal 2014, but that figure has slowly dropped each consecutive year to finish 2017 at just under $7.9 billion in sales. Worse, Campbell Soup has repeatedly fallen short in earnings reports and with weak guidance that shows it has trouble breaking the cycle. Sure, it may pay a 3.1 percent dividend. At the same time, the stock has gained less than 20 percent in the last five years while the S&P 500 has delivered 70 percent gains in the same period.
NuStar Energy (NS)
NuStar was already having a bad run, with shares down more than 40 percent on Feb. 1 from a year ago. But then things really got ugly as the pipeline operator announced a panicked restructuring and a reduced payout to shareholders, with the stock plunging even lower. There are hopes a merger of its general partner and a cut in quarterly distributions will help pay down debt and fund future projects that will set the company on the path to growth. Even if that happens, investors have no incentive to stick around and wait for NuStar to right the ship after these deep declines and a cut in payouts.
United Bankshares (UBSI)
United Bankshares is a mid-sized regional bank that operates mostly in the mid-Atlantic region. While the SPDR Regional Bank ETF (KRE) has tacked on 8 percent gains in the last 12 months, UBSI stock has fallen more than 20 percent. Although United Bankshares cites 44 consecutive years of dividend increases, that payout has gone from 29 cents a share in 2008 to 34 cents after its one-penny hike. That’s technically dividend growth, but hardly what shareholders look for in a true income investment. And with share prices lurching to the downside, the meager expansion in payouts makes this stock worth passing over.
Patterson Companies (PDCO)
Patterson is a medical device company that primarily makes its money distributing products to dentists and veterinarians. It’s a pretty stable business, but both revenue and earnings have struggled to move higher. This mid-sized company isn’t a terrible investment, but it really doesn’t give you any reason to put your money behind its shares with disappointing fundamentals. And after a deep sell-off to start 2018, with shares down more than 11 percent in the last 30 days, momentum is not in its favor. If you want a 3.1 percent dividend in a slow-growth company, you can find it elsewhere and with more stability.
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9 Troubled Dividend Stocks to Sell originally appeared on usnews.com
