Many investors flock to dividend investing for stable cash flow and the potential for appreciation. The idea of earning passive income is attractive, especially for consumers planning for retirement. However, companies change, and this can hurt investors if their portfolios continue on autopilot for too long.
Previously high-conviction stocks can turn into duds as economic conditions and company fundamentals shift. Some stocks appear to be on the brink of collapse and stage great recoveries, but those are the exceptions rather than the rule. It also isn’t practical for investors to take bets on risky dividend stocks when other companies offer healthier balance sheets and steady cash flow.
It’s important for investors to monitor their portfolios and adjust course when necessary. When a dividend stock loses its spark, investors should consider walking away from it. While some dividend stocks can stage comebacks, it’s unlikely that these three stocks recover any time soon. These are three dividend stocks to avoid.
AT&T (T)
AT&T (NYSE:T) was once the poster child for dividend income investors. Investors touted the company as a stable telecom stock delivering a dividend yield that usually hovered at around 7%. The dividend yield is still at roughly 7%, but that’s the product of a dividend cut and significant depreciation of shares.
AT&T’s revenue only jumped by a in the first quarter, and that’s somehow progress given AT&T’s performance in the Minimal revenue growth has been accompanied by declining net income, a nasty combination for any dividend stock. The firm is sitting on which doesn’t put it in a good spot, certainly not one able to support the company’s recently cut dividend. It costs AT&T $2.1 billion per quarter to give out dividends, and free cash flow concerns may lead to another cut.
To make matters worse, shows total current assets of $29.9 billion and total current liabilities of $58.2 billion. In short, AT&T is a sinking ship that happens to have a high dividend yield. Some investors will still buy AT&T because of the high yield, but should remember it is high for a reason. Some dividend yields are too good to be true, and AT&T fits that description.
Vornado Realty Trust (VNO)
Vornado Realty Trust (NYSE:VNO) finds itself in a tough spot as the commercial real estate conglomerate navigates shifts in workplace trends. The company has declined by over 75% within the past five years. The company’s commercial real estate holdings in cities like Chicago, New York, and San Francisco are set to lose value as more people opt to work from home.
Return to office efforts , commercial loan defaults are
, and employees are leaving cities for . WeWork’s (NYSE:WE) will make matters worse by potentially flooding the market with 20 million square feet of commercial real estate. Things aren’t looking good for commercial real estate in general, especially for Vornado Realty Trust.
The REIT recently . Net income . The combination of recent commercial real estate trends and this dramatic drop in net income suggests the dividend may not return for a long time. Further, Vornado’s recent dividend history and makes the sudden pause understandable. The firm’s logical decision to pause the dividend doesn’t mean investors have to stay on the ride.
Kohl’s (KSS)
Kohl’s (NYSE:KSS) shareholders have been on a tough ride for a while. The stock is down by roughly 40% over the past year and has shed approximately 70% of its market cap over the past five years. The company which is never a good sign for a dividend stock.
In the most recent earnings report, Kohl’s reported a and flat income which came to $14 million and $0.13 per share. That $0.13 EPS is important to keep in mind since Kohl’s currently pays a quarterly dividend of $0.50 per share. A dividend cut is bound to take place in the future.
Kohl’s also finds itself in a challenging industry. has hurt several companies, and the return of student loan payments at the end of August can curb discretionary spending. This trend can force Kohl’s to lower prices to get rid of inventory and incur more losses.
Kohl’s Chief Financial Officer told analysts during the earnings call that losses from retail theft will continue to grow in 2023. It’s hard to envision a rapidly declining company in an unfavorable industry pulling off a recovery or even managing to maintain the current dividend for much longer. Investors should run from this one.
On this date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
