3 Dividend Stocks to Avoid Like the Plague

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Dividend stocks appeal to the investor’s most primal craving: cash. We all know cash is king.

dividend stocks to avoidSome investors who are further along in life need steady cash dividends to supplement their retirement. Some investors won’t need that cash for many years, though, but that’s fine — dividends can be a tremendous boost to your portfolio if you automatically reinvest them.

However, when the underlying asset producing that cash is at risk, unstable or weakening, investors need to exercise extreme caution.

The following three dividend stocks are long-term traps: The underlying businesses just aren’t that great, and poor share-price performance threatens to undercut the gains made from dividends.

Dividend Stocks to Avoid – Western Union (WU)

dividend stocks western union wu stockWestern Union (WU) is living in the past, plain and simple.

Money transfers are increasingly digital, the payments and transfers space is becoming increasingly crowded with new players, and the demand for a physical brick-and-mortar location whose sole purpose is moving money from one place to another just isn’t very economical anymore.

Of course, not everyone has the time, knowledge or convenient access to technology that newer digital services might require. That point might make a solid case for WU as a sustainable dividend stock if the largest retailer in the world, Walmart (WMT), hadn’t decided earlier this year to start rolling out money transfer services in its stores.

Given that, WU stock’s 2.9% dividend yield isn’t nearly enough to make up for a business model that’s in trouble, and a company whose profitability has been on the downturn for a couple of years now.

Online banking — as well as digital payment services like eBay’s (EBAY) PayPal and Venmo — make the case for WU stock extremely weak.

It was nice knowing you, Western Union.

Dividend Stocks to Avoid – Pitney Bowes (PBI)

Pitney Bowes (NYSE:PBI)While Pitney Bowes (PBI) is nearly doubling the market this year, PBI stock and its OK-but-not-great 2.8% dividend don’t quite make for a great long-term investment.

Pitney Bowes’ sales have declined each year from fiscal 2009 through 2013, from $5.6 billion to $3.9 billion, while net income fell from $431 million to $301 million.

And remember: The base year for our comparisons is 2009, a time when the entire financial world was in flames … and things have gotten markedly worse for PBI since then. Maybe that’s because Pitney Bowes is in the mail services business. In the 21st century, a stock whose core business still involves selling postage meters isn’t exactly a screaming buy for the long haul.

Did I mention PBI’s debt-to-equity ratio is 11.5-to-1? In other words, Pitney Bowes is plenty leveraged, forcing the company to spend a large chunk of what would otherwise trickle down to the bottom line on interest expense.

Dividend Stocks to Avoid – Carnival Corporation (CCL)

Carnival Corp. NYSE:CCLCarnival Corp. (CCL) isn’t quite as awful as Western Union and Pitney Bowes … but that’s not saying much.

It’s the largest of the three companies by far, with its $30 billion market capitalization more than doubling the combined value of WU and PBI.

But that only marginally portends any sort of stability, and certainly doesn’t make CCL a good dividend stock.

Its 2.6% annual dividend has gobbled up 70% of the company’s profits in the trailing 12 months, leaving little to be reinvested in the business. Yes, CCL’s $1 annual dividend currently only amounts to 57% of expected fiscal year 2014 earnings per share and only 42% of FY2015 EPS … but sustainable long-term dividend stocks don’t simply boost dividends proportionately with profits each successive year. If they did, one bad year could force the company to cut its dividend. It would be nice to see some more room for the CCL dividend to grow.

On top of that, Carnival’s current ratio is 0.2, meaning its current assets are a meager 20% of its current liabilities.

Constant competition from the likes of Royal Caribbean Cruises (RCL), Norwegian Cruise Line Holdings (NCLH) and even Walt Disney (DIS) have cut into CCL’s profits for years. Unless Carnival can actually live up to analysts’ lofty expectations, CCL is a dividend stock to be avoided.

As of this writing, John Divine did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/3-dividend-stocks-wu-pbi-ccl/.

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