Reinforcing Sean’s comment about risk. Major risk is overvalued market, but other risks are articles like this which does not move us, but will move others that have not had the benefit of Sean’s teachings. Kiplinger article yesterday.
15 Dividend-Paying Stocks to Sell or Avoid
by: Jeff Reeves October 29, 2020
Dividend stocks often act as a store of safety, but these 15 picks look like risky plays regardless of their payout programs.
In this volatile market, many investors are looking to dividend-paying stocks to hedge their bets in equity markets. That’s partially because the regular income delivered from dividends can help provide a measure of stability. That’s also because the sectors that tend to be the most dividend-rich also tend to be relatively less volatile thanks to more reliable revenue trends.
However, that is not always the case. Particularly in the wake of the coronavirus pandemic that has upended what we once thought was “normal” economic activity, it’s important to take a discerning view of any dividend-paying stocks rather than just chase high yields.
After all, the quickest way for a stock to double its dividend yield isn’t to come up with a ton of profits to increase payouts by 100%. Rather, it’s for its share price to be slashed in half – something that normally only happens after Wall Street sours on the business, usually for good reason.
Here are 15 dividend-paying stocks to sell or at least avoid right now. This isn’t to say they won’t someday become buys again. But at the moment, they all face their own unique challenges. They also all feature comparatively negative coverage from analysts, troubling scores from the DIVCON dividend-health rating system, and/or discouraging share-price momentum.
In addition, a few of these stocks pay dividends that have been reduced recently, while a few others sport payouts that might not be sustainable if current profit trends persist.
• The Pros’ Picks: 9 Stocks to Sell Now
Data is as of Oct. 27. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
• Market value: $37.5 billion
• Dividend yield: 5.2%
With a decline of roughly 25% in 2019 while the S&P 500 had quite a good year, you might have thought the worst would be over for Kraft Heinz (KHC, $30.68), especially considering that COVID-19 has prompted a big boost in consumer staples sales – particularly packaged foods.
But while other similar brands have performed admirably in 2020, KHC is sitting on a single-digit loss year-to-date.
That’s because the crippling debt load taken on by the $36 billion deal to merge Kraft and Heinz in 2015 continues to weigh on performance even years down the road. At the time, investing icon Warren Buffet called it “my kind of transaction,” and after an instant pop of more than 20% for Kraft stock, in which he was a large investor, you could understand that sentiment in the moment.
But poor performance since then has been driven by deep cost-cutting to balance the books, which has left the product line behind current consumer tastes. Even worse, there also was a high-profile SEC investigation that resulted in deep write-offs and KHC restating three years of financials.
Said Buffett years later: “I was wrong (about KHC). … We overpaid for Kraft.”
Income hunters looking for bargains in dividend-paying stocks might be sniffing around Kraft shares, which trade at roughly one-third of their peak post-merger pricing in 2017. But as history has shown, if you think things can’t get any worse for KHC stock, you might be sorely mistaken. After a dividend cut to just 40 cents per share in 2019, this stock’s payouts might be a bit more sustainable – but even if these distributions stick, they can’t alone offset the deep declines we’ve seen in recent years.