This is not a time for weak stocks.
There’s an old saying that investors “sell in May and go away.” The idea is after the first quarter earnings season, stocks suffer seasonal weakness as CEOs, traders and investment banks take time off in summer — so you should too. Of course, there are plenty of Mays that have seen good returns for investors, including last year. However, as global trade disputes create volatility and interest rates cause concern, it may be time for some spring portfolio cleaning. There are blue-chip dividend stocks that investors keep thinking are low risk. But as you’ll see, dividends alone can’t offset the real risks these companies are facing.
Campbell Soup Co. (ticker: CPB)
One of the biggest challenges of a legacy brand like Campbell is that consumer tastes have evolved dramatically from 50 or 60 years ago. CPB management has tried changes, with microwaveable packaging and its premium Home Style product line. It also has branched into healthful drinks via its V8 nameplate. But a crowded marketplace and a push toward fresher and healthier premium foods leaves little room for CPB. Shares are down about 30 percent in the last 12 months and are trading right back where they were five years ago. A consistent dividend can’t offset that kind of poor performance.
Current yield: 3.3 percent
The Hershey Co. (HSY)
Another company that has lost its connection with consumers is Hershey, a brand synonymous with candy bars. As consumers focus on healthier eating with less sugar, it’s hard to see a bright future for HSY stock. The stock has struggled since about 2014. The company is trying to expand product lines, but chocolate-related sales account for almost three-quarters of all revenue so it is an uphill battle. Consumers not only are indulging more sparingly, they are favoring high-end options — and items like Twizzlers, Almond Joy and Mr. Goodbar seem more like stodgy relics than go-to sweets. The dividend isn’t big enough to offset these very real risks.
Current yield: 2.7 percent
General Electric Co. (GE)
Sure, industrial giant GE saw its shares bounce on a strong earnings report and relatively reassuring outlook for the rest of 2018. But let’s not forget General Electric stock has been roughly cut in half over the last 12 months, and is down about 65 percent from highs in 2007 even as the broader stock market has recovered nicely. The biggest black eye of all for income investors, however, are the two cuts to its dividends in nine years. There’s continued talk of a turnaround and restructuring, but until investors see material improvement beyond a short-term pop in shares, they should steer clear of GE.
Current yield: 3.6 percent
International Business Machines Corp. (IBM)
IBM shareholders are watching and waiting as the company’s struggles to move beyond its legacy hardware operations haven’t yet been replaced by any of the so-called “strategic imperatives” that IBM has been working on, such as its Watson artificial intelligence engine. There’s always a chance this company gets its act together, but things aren’t looking good with shares down more than 20 percent from their 2012 highs even as the rest of Wall Street has powered higher. There are plenty of other places for investors to find a similar yield without the big downside risk.
Current yield: 3.8 percent
Tupperware Brands Corp. (TUP)
Tupperware was already smaller than many of the stocks on this list, but a more than 40 percent decline in the last 12 months has made this once-dominant company a mid-cap stock with a storied past and troubled future. A few months ago TUP said it would be reducing its Q1 earnings guidance significantly, thanks to problems with its customer service and supply chain. Those are the building blocks of a business. Analysts have been hoping emerging market sales growth can turn this company around, but investors should wait for proof instead of hopes and dreams. The dividend is big at Tupperware, but the losses even bigger.
Current yield: 6.5 percent
Procter & Gamble Co. (PG)
P&G is another blue-chip stock that has long been a favorite of income investors despite serious challenges to its underlying business. While brands like Olay and Gillette are consumer mainstays, the market is saturated, and in a digital age it’s easy for boutique brands to challenge. At the same time, brands like Bounty and Tide see pressure as competitors undercut on price — thus forcing P&G to either lose business, or give up some profits by lowering prices. The result has been a stock on par with 2013 valuations. The dividend is reliable, but lagging performance is a red flag.
Current yield: 3.7 percent
Bed, Bath & Beyond (BBBY)
Home goods seller Bed, Bath & Beyond survived e-commerce better than most because it wasn’t feasible to ship furniture and the company was a top spot among couples making wedding registries. Well, the internet has caught up with BBBY. Same-store sales are in a downward spiral as competitors offer a wide selection of furniture and home goods with free shipping. BBBY is stuck competing on price alone. That’s always a losing business when you have physical stores, and investors are feeling the pain. Bed, Bath & Beyond is trying to go digital to catch up, but is too far behind.
Current yield: 3.5 percent
Teva Pharmaceutical Industries (TEVA)
At first glance, Teva seems like a wise play because it is in the reasonably recession-proof health care sector and has a large array of generic drugs that help insulate it from the patent expirations. But the industry pretty much lives and dies on big blockbusters, and a comparative lack of high-margin medications means less profit potential in the long-run. Management missteps, where projections over the next few years were overly optimistic and debt loads have been harder to manage than expected, have shaved 40 percent of this stock’s value in the last 12 months. A dividend is cold comfort with troubles like that.
Current yield: 4.7 percent
L Brands (LB)
Another specialty retailer in trouble is L Brands, parent of Bath & Body Works and Victoria’s Secret. In an internet age, folks easily can get premium lotions and soaps. And increasingly, the high-priced offerings of Victoria’s Secret have been squeezed as stores like Target Corp. (TGT) step up with affordable products of decent quality as premium competitors connect with high-end consumers. L Brands doesn’t really have a clear path to growth and has dropped roughly 60 percent since the end of 2015. Revenue has bottomed out after declines in prior years, but being less bad and offering a dividend isn’t reason enough to invest in this stock.
Current yield: 6.6 percent
More from U.S. News
7 of the Best Dividend Stocks to Buy for 2018
The Top 10 Investment Portfolio for Millennials
20 Awesome Dividend Stocks for Guaranteed Income
9 Dividend Stocks to Sell in May (and Go Away) originally appeared on usnews.com
