7 High-Yield Dividend Stocks That Are Quickly Becoming Toxic

These companies weren't looking good to begin with, but election jitters have sent them packing for the basement

Source: Rafael Matsunaga via Flickr

U.S. equities are under serious pressure as Republican Party presidential contender Donald Trump has closed the gap to democratic rival Hillary Clinton with just a week to go until Election Day. But high-yield dividend stocks in particular are taking it on the chin.

The Dow Jones Industrial Average scythed below the 18,000 level and is threatening a collapse to five-month lows. Small caps in the Russell 2000 have already returned to levels last seen in July.

Something to keep in mind: This dynamic could be self-reinforcing. As Trump’s odds rise, the market weakens. And the more the market weakens, the more Trump’s odds rise, as stock volatility before Election Day has historically benefited the non-incumbent party’s candidate.

This selling pressure, mixed with still-high odds of a Federal Reserve interest rate hike before the end of the year and the long-term bond market selling pressure that resulted, is a toxic brew for supposedly “safe” dividend-paying large-caps — many of which have been hammered in recent days.

Here are seven high-yield dividend stocks to avoid as a result:

High-Yield Dividend Stocks to Avoid: AT&T (T)

High-Yield Dividend Stocks to Avoid: AT&T (T)

T Dividend Yield: 5.4%

AT&T Inc. (NYSE:T) shares have been hammered lower since peaking in August — down some 16% — on a combination of yield pressure and nervousness about the company’s acquisition of Time Warner Inc (NYSE:TWX).

Anyone holding AT&T for the dividends might be scratching their head at the idea of the telecom spending $85.4 billion on Time Warner while it sits on just more than $7 billion in cash and short-term investments.

Investors are nervous that the move by telecoms into the content space — no doubt an effort to stave off revenue pressure from smartphone market saturation — will prove difficult amid intense competition and structural changes. Think “over-the-top” services like Netflix, Inc. (NASDAQ:NFLX), Hulu and others.

Chances are investors would rather see a one-time special dividend or increased buybacks, if the alternative is likely overpaying for a company that might not actually produce as many synergies as the would-be pair claim.

Yes, AT&T yields well more than 5% right now, but, dividend growth has come at a snail’s pace. AT&T recently upped the payout by a paltry 2% to 49 cents per share, marking a mere 10% total increase in its quarterly dividend over the past five years. That announcement came amid its earnings announcement, in which it reported profits and revenues that were merely in line with expectations.

High-Yield Dividend Stocks to Avoid: Ford (F)

High-Yield Dividend Stocks to Avoid: Ford (F)

F Dividend Yield: 5.2%

Ford Motor Company (NYSE:F) shares are testing below their October lows and are threatening a return to lows not seen since February, as evidence grows of a slowdown in consumer spending and signs of subprime credit excesses in the auto loan market — all of which will likely weigh on auto sales going forward.

The selloff comes despite the reporting of better-than-expected quarterly earnings on Oct. 27 despite a 6.9% year-over-year decline in revenue.

The upside on Ford shares is that their nearly 20% bludgeoning for the year-to-date has lifted the yield up to a thick 5.2%, though so far, that payout hardly seems to be acting as any sort of support right now. And current investors might be feeling a little agitated for more than just the share depreciation.

Despite the fact that the company’s current payout is just 36% of next year’s estimated earnings (which are expected to decline 7%, by the way), Ford has failed to increase its dividend so far this year — and late October was the company’s last earnings report of the year.

Sure, it’s possible that an announcement could hit before New Year’s, and sure, maybe investors could even see a special dividend in early 2017 like Ford paid out to start this year. But as it stands, F shares’ quarterly payout has remained locked in place since the start of 2015.

High-Yield Dividend Stocks to Avoid: Welltower (HCN)

High-Yield Dividend Stocks to Avoid: Welltower (HCN)

HCN Dividend Yield: 5%

Healthcare real estate investment trust Welltower Inc (NYSE:HCN) is currently breaking through its 200-day moving average, returning to prices last seen in May of this year. This comes amid a broad weakening in healthcare real estate investment trusts.

Welltower has been dead money since 2013, as HCN shares are actually off more than 10% since peaking in May of that year. Traders have been able to squeeze some profits out of HCN, given that the stock has climbed and careened in a range between $84 and $53 since then.

But long-term investors hoping that the company formerly known as Health Care REIT would enjoy the fruits of the healthcare megatrend have been sorely disappointed. Since that same May 2013 point, the Health Care SPDR (ETF) (NYSEARCA:XLV) has put up nearly 45% in total returns. HCN, even once you factor in its healthy dividend, is just 3% in the black.

The company has at least acknowledged its growth issues, most recently adding 19 senior housing properties in a $1.15 billion deal to acquire a portfolio from Vintage Senior Living.

High-Yield Dividend Stocks to Avoid: HCP, Inc. (HCP)

High-Yield Dividend Stocks to Avoid: HCP, Inc. (HCP)

HCP Dividend Yield: 6.7%

HCP, Inc. (NYSE:HCP) reported earnings on Tuesday morning before the bell. Earnings of 72 cents per share beat expectations by a penny and spun off its QCP unit, but investors were unimpressed with the forward guidance.

For as bad as Welltower has been, HCP has been even worse, off more than 35% since May 2013 and barely pushing its dividend up the hill along the way. The company’s payout has crawled ahead less than 10% in that time.

HCP has been weighed down by its HCR ManorCare portfolio, which includes skilled nursing and assisted living assets. HCP bought the portfolio back in 2011, and since then, the performance has been lousy.

HCR ManorCare even drew Justice Department attention, facing allegations that the company bilked Medicare by providing unnecessary services. The portfolio has become so toxic that HCP just spun it off into a new company, Quality Care Properties (NYSE:QCP).

HCP is now battling support at its 200-day moving average.

High-Yield Dividend Stocks to Avoid: Centurylink (CTL)

High-Yield Dividend Stocks to Avoid: Centurylink (CTL)

CTL Dividend Yield: 8.6%

Centurylink Inc (NYSE:CTL) shares have been whipsawed lower after reporting earnings and announcing the acquisition of Level 3 Communications, Inc. (NYSE:LVLT) for $66.50 a share.

But for as many acquisitions as CenturyLink has done over the years, the Level 3 buyout is interesting in that it will create 513 million new shares, versus 546 million shares already in existence.

Naturally, CTL stock has suffered a 25%-plus peak-to-trough decline over the past week as investors worry CTL is overpaying and diluting existing shareholders.

Centurylink reported better-than-expected earnings of 56 cents per share on Monday (a penny ahead of estimates) and in-line revenues. But forward guidance was weak, coming in at 53 to 59 cents per share vs. the 64 cents analysts were expecting.

Meanwhile, the dividend has remained unchanged at 54 cents per share quarterly since early 2013 … when the payout was slashed by 26%.

High-Yield Dividend Stocks to Avoid: Seagate Technology (STX)

High-Yield Dividend Stocks to Avoid: Seagate Technology (STX)

STX Dividend Yield: 7.5%

Seagate Technology PLC (NASDAQ:STX) shares are down roughly 15% from their early October high on the reappearance of doubts about the health of PC consumer demand and the need for at-home storage in a cloud-based world.

In short, when you are a hard disk drive company, and the HDD market is shrinking … well, that’s a problem.

STX reported tepid results on Oct. 19, including a 4%-plus year-over-year drop in revenue and disappointing forward guidance.

Unlike the other stocks on this list, Seagate has been more than generous as far as dividend hikes are concerned. The company has put the pedal on its dividend since resuming it at 18 cents quarterly in 2011, ramping it up by 250% to 63 cents currently. With dividends making up 67% of future earnings (that are expected to be flat in 2017), there’s not much room for growth from here.

High-Yield Dividend Stocks to Avoid: Korea Electric Power (KEP)

High-Yield Dividend Stocks to Avoid: Korea Electric Power (KEP)

KEP Dividend Yield: 6.3%

Korea Electric Power Corporation (ADR) (NYSE:KEP) has collapsed back to levels not seen since February on a combination of long-term yield pressure and strength in the U.S. dollar.

The company was downgraded by analysts at UBS on Oct. 24, precipitating the selloff.

Shares have lost more than one-quarter since August, returning the stock to its 2014-15 trading range. KEP collapsed below its 200-day moving average long ago, but more recently, the 50-day MA did the same, scrawling out a death cross.

If there’s any reason for short-term optimism, it’s extremely oversold levels in the Relative Strength Index (RSI) and the MACD indicator.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2016/11/7-high-yield-dividend-stocks-toxic/.

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