Dividends alone can’t offset declines.
The stock market has been pulled in two very different directions in 2020. While many of the largest technology stocks have done quite well — like Amazon.com (ticker: AMZN), which has surged more than 60% this year — stocks in other sectors have had it much worse. This includes some traditional “value” investments that have actually declined 60%. These names are often found in energy or real estate, too, sectors that had previously been thought to provide certainty thanks to their tangible assets and steady operations. Disruptions caused by the pandemic have changed the game, however, and while the following seven dividend stocks are still paying out distributions of some kind, they remain very much in danger — as they are among the dividend stocks that have dropped the most this year. Even income investors may want to rethink any exposure to these stocks right now.
Berkshire Hills Bancorp (BHLB)
Berkshire Bank — a subsidiary of Berkshire Hills Bancorp — is a small, traditional bank that offers the kind of services most consumers would expect, including debit cards, savings accounts, mortgages and business lines of credit. It’s a modest outfit with about 130 full-service branches in the Northeastern U.S., from Pennsylvania to Connecticut. Unfortunately, that area is densely populated with competing financial services firms, and BHLB doesn’t quite have the scale of the big banks nor the local appeal of a hometown credit union to fall back on. The company is forecasting significant losses this year as the pandemic has taken its toll and recently cut its dividend in half as a result.
Current yield: 4.8%
Enerplus Corp. (ERF)
Canada’s Enerplus is a crude oil and natural gas exploration company with rather modest holdings that tend to be more expensive to turn into finished energy products. These include more than twice as much “heavy” crude, which is harder to refine than “light” crude, and natural gas in shale fields that requires hydraulic fracturing, or “fracking,” to extract. When energy prices are high and demand is strong, ERF has no trouble generating good profits. But lately, as crude oil has slipped back to less than $40 a barrel and demand stays weak, the company is barely clinging to its dividend with payouts of less than a penny per share.
Current yield: 4.8%
Diamondback Energy (FANG)
Income investors who simply look at the dividend history of Diamondback may think this is a rare example of an energy explorer that is thriving right now. After all, quarterly payouts are up significantly to 37.5 cents a share compared with 18.8 cents in 2019. Furthermore, its current earnings are looking quite strong, and that dividend may in fact be sustainable for the near future. However, a look at FANG’s share price shows things aren’t all rosy for this energy stock as shares have crashed more than 60% from its 52-week high. The bottom line is that FANG’s bottom line is tied very closely to energy prices, and with oil less than $40 a barrel at present and long-term pressures continuing to mount, it remains unlikely the underlying business will get much better anytime soon.
Current yield: 4.8%
Genesis Energy (GEL)
One of the worst-performing energy stocks of 2020, midstream energy company Genesis has been in deep trouble for a host of reasons. While it’s mostly involved in transportation of oil and gas, the big risk factor is that it’s focused on offshore operations that tend to be very costly and very risky, and as such have been drastically cut back lately. Genesis mentioned in August it’s suffering from “generational economic headwinds” from the widespread decrease in demand caused by the pandemic, and the stock’s massive decline of more than 75% year to date is proof that’s not just exaggeration. GEL cut its dividend from 55 cents to 15 cents earlier this year. If this year’s pressure keeps up, then a deeper cut is very possible.
Current yield: 13%
Macerich Co. (MAC)
California-based Macerich is a commercial real estate investment trust, or REIT, that primarily operates about 50 regional shopping centers across the U.S. that encompass about 50 million square feet. While malls aren’t quite what they used to be in the age of e-commerce, the pandemic has been particularly hard on brick-and-mortar establishments. From the death of one-time anchor stores like J.C. Penney, which filed for bankruptcy this year, to L Brands (LB) closing about 250 of its once-dominant Victoria’s Secret stores, it’s clear why a company like MAC is in big trouble in 2020. The company recently paid a dividend of 15 cents, but after previous cuts, its future payouts are likely in big trouble.
Current yield: 8.8%
Noble Midstream Partners (NBLX)
After cutting payouts significantly from about 69 cents to around 19 cents at present, this roughly $650 million energy stock has actually stabilized significantly when compared with its March lows of less than $2 a share. Granted, NBLX remains down a staggering 70% or so from its 52-week high, but at around $7 a share at present, things are admittedly looking better than they were just few months back for this master limited partnership, or MLP. The problem for Noble is the same as for many of the energy stocks on this list, as its services for fracking companies have dried up as demand for oil and gas has fallen amid the pandemic.
Current yield: 10.3%
Scorpio Tankers (STNG)
Scorpio is a roughly $650 million shipping company that owns a fleet of about 140 tankers, which mainly services the energy industry. It has been a wild ride for STNG in 2020 as plummeting oil and gas demand first undercut the stock in spring and then fears of a supply glut created short-term interest in tankers as floating storage for all those energy products that wouldn’t ultimately get used. Now that the supply chain has normalized a bit more, however, that previous bump caused by stopgap storage concerns has left tanker operators like Scorpio in rough shape. The company has paid three dividends of 10 cents apiece so far this year, despite volatility in share prices, and recently tapped around $80 million in financing to stay afloat. This dividend stock is certainly looking at rough seas ahead.
Current yield: 3.6%
Seven dividend stocks to sell:
— Berkshire Hills Bancorp (BHLB)
— Enerplus Corp. (ERF)
— Diamondback Energy (FANG)
— Genesis Energy (GEL)
— Macerich Co. (MAC)
— Noble Midstream Partners (NBLX)
— Scorpio Tankers (STNG)
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