Dividend stocks aren’t just for retirees in Florida or Arizona. They are a great way to grow your positions in good companies over time by reinvesting those dividends. Or they’re a smart way to put your money to work and receive more cash than you can get in a bank account, CD, or Treasury bond.
But not all dividend stocks are created equal. And it’s not just small companies bouncing around in this rough market that see their dividends at risk.
There are some major players that are close to cutting their dividends to save some cash for dealing with the economic tsunami of COVID-19.
Small companies usually have small markets, so their exposure to the broader economy is limited. That can help in difficult times.
Big players have more exposure, which opens them up to more risk, especially in volatile times. The seven dividend stocks that may be in danger are all in this bubble. Many are household names with huge market recognition — yet at this point, all are either a “sell” or even a “strong sell” in the Portfolio Grader tool I use to assess fundamentals and institutional buying pressure in making Growth Investor recommendations.
- ExxonMobil (NYSE:XOM)
- Wells Fargo (NYSE:WFC)
- Comerica (NYSE:CMA)
- Avnet (NYSE:AVT)
- Xerox (NYSE:XRX)
- American Airlines (NASDAQ:AAL)
- Baker Hughes (NYSE:BKR)
Dividend Yield: 7.63%
ExxonMobil is one of the biggest oil firms in the world. Even after the recent brutalizing of the energy markets, it still has a market cap of $187 billion.
But the concern with XOM isn’t just because of the lockdown and potential slowing of the global economy. It was a concern back in February, when a Barron’s article discussed concerns analysts had about this dividend aristocrat before COVID-19 was even an issue.
Of the dividend stocks on this list, XOM stock has lost 40% in the past year and its dividend is now nearly 8%. If things continue as they have been, this level is unsustainable.
XOM has raised its dividend every year for the past 37 years. If it cuts, that will be a big psychological blow as well as a financial one. You don’t want to be around for that.
Wells Fargo (WFC)
Dividend Yield: 8.25%
Wells Fargo has been in and out of trouble with regulators since the 2008 financial crisis.
And even after all the scandal, a new CEO, and re-focused management team, it still can’t manage to get back on track like the other big banks.
My Growth Investor readers can tell you that I’m not a fan of the big banks; after a past career as a Federal Reserve analyst, I simply don’t trust their accounting. And now, WFC stock is down 54% year to date. Many analysts are cutting their rating from “hold” to “sell” at this point, concerned that WFC can generate the cash needed to operate profitably during the coronavirus.
And if it’s not generating cash to run its operations profitably, its 8% dividend may end up too generous a distribution for shareholders.
There is a lot of trouble waiting to happen, especially if the U.S. economy doesn’t bounce right back after COVID-19 lockdowns end.
Dividend Yield: 8.55%
Comerica is another big bank that has big problems. With a $4.4 billion market cap, it’s not a megabank, but it is a national player.
The biggest problem is, it depends on income from the loans it provides for much of its operating capital. And it is exposed to some of the worst sectors of the economy right now. That means it could be in deep trouble if these tenants default or can’t make their interest payments.
This risk has been growing and it’s the main reason Fitch downgraded the company’s credit rating recently.
If CMA can’t keep the money rolling in the door, its dividend will have to take a cut so that money can be redeployed to keep the doors open.
This might be a national bank, but it is hitting some very stiff headwinds.
Dividend Yield: 3.02%
Avnet is one of those companies that has been a part of America’s story of consumer electronics since the 1920s.
In 1921, Charles Avnet started selling surplus radio parts in the ‘Radio Rows’ in various cities around the country. From that business, he started branching out, selling antennas to the Army in WWII. From there, he built a factory in Los Angeles to supply airplanes with electronic parts and equipment.
By 1973, Avnet was the first distributor of Intel (NASDAQ:INTC) semiconductors. And the story continues to expand to this day, including a recent foray into Bitcoin.
This is a tough time to be an electronics provider and Bitcoin player. The stock is off almost 40% in the past year, and while it deliver a nearly 3% dividend currently, accessing that cash may become necessary. And that will set off a chain reaction to the downside as investors lose confidence. There are much better choices out there for dividend AND growth investors.
Dividend Yield: 5.73%
Xerox is a shadow of its former self. Once one of the pioneers in the next-gen tech front and dominant copy machine hegemon, it’s now a holding company that’s in the digital documents business.
Recently it tried to acquire computer and printer company HP (NYSE:HPQ), to no avail. Carl Icahn now sits on the board and is trying to take the firm in a different direction, but even he is having a tough go of it. And COVID-19 certainly hasn’t helped, since much of its current business is office copying machines.
Its 5.7% dividend may be its best source of needed cash if things don’t turn around soon.
American Airlines (AAL)
Dividend Yield: 4%
American Airlines is one of the biggest airlines in the U.S., and the world. But like all the other airlines here and abroad, COVID-19 has done a number on their business models.
AAL is off 71% in the past 12 months and 65% year to date. Granted, the government has stepped in to help the ailing industry, but there is still a concern that this low margin business might not be able to make it back if we don’t see a V-shaped recovery.
Recent figures show unemployment in the U.S. at Great Depression levels. The Street remains confident that once the economy opens up again, all will go back to normal by Q3 or Q4.
But all the same, they’re hedging their bets when it comes to the travel industry, especially the airlines.
It currently has a 4% dividend yield, but when you’re talking about sheer survival, cutting the dividend is near the top of the survival list. Investors should look elsewhere for dividend growth stocks that will survive and thrive going forward.
Baker Hughes (BKR)
Dividend Yield: 5.14%
The last on this list of dividend stocks to pass on is Baker Hughes. Baker Hughes is a good-sized oil field services company. And as you’ve seen the action in the price of oil recently, you can understand that BKR is having a tough go of it right now.
Bear in mind that like the airlines, the energy patch is a very volatile industry. When times are good, they’re very good. And vice versa.
Right now it’s vice versa. The company reported last week that the U.S. oil rig count was down for its seventh consecutive week. BKR layoffs have begun. Exploration and production companies continue to shut down operations. Pipelines and refineries are slowing down.
None of that is good for a company that supplies equipment and services to all these industries.
But as I said, this is part of the boom and bust world in the energy patch. And cutting dividends to save cash is a pretty normal thing for a firm the size of BKR. The stock is off 43.5% year to date and its 5% dividend is becoming an extravagance.
The problem is, when dividends get cut, investors flee. And when they see that even the market’s best growth stocks are better able to sustain the payout than this classic “dividend stock,” they may not return for some time.
At this point, I recommend you protect your portfolio with this simple method: Focus only on the creme de la creme stocks that offer dividends and growth. One of my favorites is positioned as a key hardware provider for artificial intelligence (AI).
The AI Master Key
If artificial intelligence sounds futuristic, even far-fetched — well, keep in mind, you’re already using it every day. If you’ve ever used Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Assistant or Apple’s (NASDAQ:AAPL) Siri … if you’ve had Netflix (NASDAQ:NFLX) recommend a movie or Zillow (NASDAQ:Z) recommend a house … even an email spam filter … then you’ve used artificial intelligence.
In this new world of AI everywhere, data becomes a hot commodity.
As scientists find even more applications for artificial intelligence — from hospitals to retail to self-driving cars — it’s incredible to imagine how much data will be involved.
To create AI programs in the first place, tech companies must collect vast amounts of data on human decisions. Data is what powers every AI system. As one AI researcher from the University of South Florida puts it, “data is the new oil.”
To cash in, you’ll want the company that makes the “brain” that all AI software needs to function, spot patterns, and interpret data.
It’s known as the “Volta Chip” — and it’s what makes the AI revolution possible. Even better, its stock has been a “strong buy” in my Portfolio Grader for weeks despite market volatility.
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Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.