Investors should avoid these stocks.
When investors look for income, they typical turn to low-risk dividend investments. But the low interest-rate environment has caused many investors to forget the first part of that strategy and only look for big dividend payers — regardless of their risk profile. This can be a costly mistake for investors needing a source of income and stability. Riskier picks can cost you a ton of money even if they have a high dividend yield. What good is a 5 percent payout over 12 months if you lose 50 percent of your initial investment in the first year? Dividend investors should avoid chasing yield in general, and avoid these nine stocks in particular.
Newell Brands (ticker: NWL)
A few decades ago, many Americans were in love with the family of products created by Newell — Coleman camping gear, Elmer’s glue, Mr. Coffee kitchen products and Rubbermaid storage products. But now, competition is eroding those brands, both with cheaper alternatives for bargain shoppers and upscale options for wealthier customers. The result has been pain for this diversified consumer company that has a big brand portfolio but modest synergy. NWL has fallen under increasing pressure from activist investors this year, including Carl Icahn, but there’s a lot of work ahead before this stock should be considered on the mend.
Year-to-date performance: -45 percent
Current yield: 5.3 percent
Goodyear Tire and Rubber Co. (GT)
Partially a victim of the trade war and peaking automobile sales globally, Goodyear simply doesn’t have a lot of road left ahead of it. The Ohio-based company has been losing ground for some time, as it recorded $19.5 billion in revenue in 2013 and about $15.5 billion for fiscal 2017. The company did just lift its dividend substantially and the payout seems sustainable. However, this is not a company that has a long-term path to growth so it’s difficult to fall in love with a modest yield and a decaying share price.
Year-to-date performance: -37 percent
Current yield: 3.1 percent
General Mills (GIS)
With big brands like Cheerios cereal and Yoplait yogurt, it’s easy to understand why many investors think General Mills has staying power. However, it’s worth noting that a trend toward fresh foods has made things generally much harder for packaged and processed items. That’s particularly true for many GIS brands that include Fruit Roll-Ups, Helper (previously known as Hamburger Helper) and both Betty Crocker and Pillsbury baked goods. While profits are admittedly stable, investors are worried there isn’t much upside — and more importantly, GIS stock has very little upside in the near future and, as a result, has been a seller in 2018.
Year-to-date performance: -25 percent
Current yield: 4.4 percent
General Electric Co. (GE)
In years past, General Electric was one of the most widely held stocks, an industrial powerhouse that would withstand the test of time. Well, a lot has changed for this blue chip, starting with a big dividend cut in the wake of the 2008 financial crisis and another dividend cut earlier this year amid continued struggles. There’s talk lately about how new CEO Larry Culp, the first-ever outsider to lead GE, will revitalize the company with discipline and perspective. But dividend investors shouldn’t believe that until they see consistent success from this stock, given its poor track record.
Year-to-date performance: -28 percent
Current yield: 3.9 percent
L Brands (LB)
In the age of Amazon.com (AMZN), many retailers have struggled — but Victoria’s Secret and Bath & Body Works parent L Brands has suffered more than most. Consistently disappointing results coupled with continued competition means a long-term decline that is tough to break. Lately revenue has at least stabilized, but investors have been quick to sell off LB stock in part out of fear that its dividend may not be sustainable. That means you shouldn’t fall for the nominally high yield, and tread carefully with LB stock.
Year-to-date performance: -50 percent
Current yield: 8.1 percent
Janus Henderson Group (JHG)
U.K. financial firm Janus Henderson is a recognizable asset manager, even to investors in the U.S. But after the combination of those two nameplates in 2017, investors have cooled to the long-term prospects of this firm in the age of ETFs. If investors want to go hands off, they turn to behemoths like Vanguard, and if they want hands on, they typically go to the hot hands in the hedge fund world or proven managers like Goldman Sachs Group (GS). It leaves little room for growth and that makes future prospects decidedly dim for JHG.
Year-to-date performance: -38 percent
Current yield: 6 percent
British American Tobacco (BTI)
In years past, tobacco companies were a pretty sure bet given that their products are addicting. We’re not even talking about the 1950s, either, as many big tobacco companies like BTI continued to thrive in the 1990s and 2000s as they cut costs and focused operations. BTI has run out of gas, plummeting from highs above $70 a share last year to around $40. That’s because of a perfect storm that includes worse sales for alternative products, lower demand for core products internationally and a product recall in the U.S. All that, coupled with declining smoking rates, makes this stock hard to like.
Year-to-date performance: -43 percent
Current yield: 6.3 percent
Scotts Miracle-Gro Co. (SMG)
Scotts was caught up in a booming interest in marijuana-related investments in the last year or so. The company made a lot of fuss about its hydroponics growing gear and how this was aligned with the potential of legalized marijuana in the U.S. However, federal law has remained onerous and the promise of a massive business opportunity hasn’t been realized. That, coupled with a shift in investor sentiment, has resulted in a sell-off for SMG in 2018. And while the dividend is decent, the volatility caused by its association with trend-following investors puts this pick off limits to low-risk dividend investors.
Year-to-date performance: -33 percent
Current yield: 3 percent
Olin Corp. (OLN)
Specialty chemical corporation Olin is just under $4 billion in size, making it too small to enjoy the dominance of other large corporations in the sector like 3M Co. (MMM) and DowDupont (DWDP). Worse, its specialty tends to be gunpowder used in ammunition and bullets — and in the wake of persistent mass shootings across the U.S., many investors are asking their money managers to remove gun-related holdings from their portfolio. The fact that gun sales peaked a few years ago and global trade wars are creating potential headwinds only makes things worse for OLN stock right now despite a decent dividend.
Year-to-date performance: -37 percent
Current yield: 3.5 percent
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