4 Dangerous Dividend Stocks to Avoid for Retirement

These names could be trouble -- there's better yield elsewhere

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no note 630 300x253 4 Dangerous Dividend Stocks to Avoid for RetirementHow do you tell if a company’s dividend is unsustainable?

Some look at the current yield in comparison to its peers. If we are talking about the packaged goods industry, for example, and Company A has a yield of 15% while Company B’s is 3%, most likely there’s something’s wrong with Company A’s business, thereby reducing the value of its stock.

Others look for an unusually high payout ratio. So, if Company A pays out 75% of its earnings in the form of dividends while Company B dishes out just 37.5% of its earnings, it’s possible Company A has an earnings issue, and the dividend may be in trouble.

Income expert Roger Conrad uses free cash flow rather than earnings when examining a stock’s payout ratio. All things being equal, free cash flow is a much better indicator of a company’s overall health.

Using the FCF ratio as my guide, here are four stocks that possess an unsustainable dividend. Each of these companies has big problems — income-seeking retirement investors beware.

 
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Article printed from InvestorPlace Media, http://investorplace.com/2013/10/4-dangerous-dividend-stocks-avoid-retirement/.

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