7 Dividend Stocks to Avoid Until They Start to Shape Up Again

dividend stocks - 7 Dividend Stocks to Avoid Until They Start to Shape Up Again

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Stocks have made a good run so far this year, yet we’re running into a familiar space in the past 18 months: uncertainty. Some investors look to dividend stocks now, for safety and value.

That can be a good strategy, since many investors have bid up growth stocks to crazy levels and dividend stocks have been relatively ignored. But remember that not all dividend stocks are created equal.

Real estate investment trusts (REITs) can produce great dividends but not all are created equal. Energy companies can have trouble managing supply or distribution that kills the price but boosts the dividend.

And once a company cuts its dividend, the party is over. Individual investors rarely get out before institutional investors dump the stock, so they’re left holding the big losses.

Here are seven dividend stocks to avoid in this churning market.

  • SABRA Healthcare REIT (NASDAQ:SBRA)
  • ADT (NYSE:ADT)
  • CMC Materials (NASDAQ:CCMP)
  • Americold Realty Trust (NYSE:COLD)
  • Equitrans Midstream Corp (NYSE:ETRN)
  • Physicians Realty Trust (NYSE:DOC)
  • Entergy (NYSE:ETR)

Dividend Stocks to Avoid: Sabra Healthcare REIT (SBRA)

Image of hands holding a red heart with a patch on it and a background comprised of white bricks

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Whenever a REIT is delivering a 7.1% dividend, don’t grab it and run until you figure out why it has such a hefty yield. Usually that means there’s some kind of trouble. In general, dividends rise when stock prices fall.

And if stock prices fall long enough, those dividends become unsupportable. That means a dreaded dividend cut.

SBRA acquires and sells properties to third party healthcare companies, primarily in the elder care sector. Currently it has over 430 properties around the U.S.

But the pandemic has put facilities under significant pressures and the resurgence of the delta variant adds to the complexity of reopening or shutting down facilities again. Plus, in many places staffing is now an issue.

There are some short-term troubles here and SBRA’s nearly $4 billion market cap puts in on the small end of the market. SBRA stock has lost slightly more than 1% year-to-date and the dividend is getting risky.

This stock receives a Dividend Grader F rating.

ADT (ADT)

ADT (ADT) home security sign sitting outside of a building

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While the brand has been around for quite a while, ADT didn’t trade as its own stock until 2016. It has been owned by multinationals as well as private equity firms for decades, so its history among dividend stocks is brief.

And the past 18 months haven’t been good to the home security and automation sector. Crime and potential fire aren’t on the top of the list for most homeowners right now. This sector has been de-prioritized, especially since work from home means properties are left vacant far less often these days.

ADT only has a 1.6% dividend, which doesn’t make it a dividend stock to search out. But it’s still better than most money market funds or CDs. Although they have far less market risk. ADT is up 13% year-to-date, but the stock has lost 24% in the past 12 months. There are better stocks out there.

This stock receives a Dividend Grader D rating.

Dividend Stocks to Avoid: CMC Materials (CCMP)

Close-up electronic circuit board. technology style concept. representing semiconductor stocks

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What do semiconductor manufacturing and pipelines have to do with one another? CCMP. The company makes strategic and performance materials for both industries.

And it has done a decent job since it has operations in 35 locations around the world. It makes drag reducing agents (DRAs) and valve lubricants for pipelines. It makes polishing and metrology optical manufacturing solutions for the semiconductor industry.

The thing is the pandemic has hit both industries and business is inconsistent at best. Earnings are negative. The stock is down nearly 20% year-to-date. And its 1.6% dividend hardly makes it one of those dividend stocks that you can hold until things turn around. As covid picks up steam again, it’s not worth the risk and there could be more downside before we see any upside.

This stock receives a Dividend Grader C rating.

Americold Realty Trust (COLD)

image of a closed storage unit door

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This is one of those unique REITs that in good times would be a great strategic play and one of those dividend stocks you would be happy to brag about. But we’re not in good times.

At least the good times are evading this specialized REIT that owns and operates 242 global temperature-controlled storage warehouses. As you have heard again and again since the pandemic began, global supply chains are snarled, to put it mildly. It’s still challenging moving goods in and moving them out again. And for goods that are temperature controlled, that’s an even bigger issue.

Also, the global heat waves, fires and floods are making distribution more challenging than usual.

Its Q2 numbers were solid, although they were compared to last year, so you would expect them to be improved. But earnings are still negative and Q3 maybe just as challenging as the rest of this year. Its 2.4% dividend isn’t under threat, but the stock isn’t moving and there are better opportunities right now.

This stock receives a Dividend Grader C rating.

Dividend Stocks to Avoid: Equitrans Midstream (ETRN)

Pipelines in the desert

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When you see the mention of a midstream company, just replace the word pipeline for midstream. In the energy sector, you have upstream (exploration and production), midstream (pipelines) and downstream (refining, distribution, sales).

Generally midstream firms are the most consistent because they operate as toll takers; they charge by the volume sent through their pipes. The cost of oil or natural gas doesn’t matter. Demand is key.

ETRN is a major midstream company in the Appalachian Basin that focuses on natural gas distribution. It also supplies water to the fracking rigs that operate in the basin.

Set up as a limited partnership, it pays out net profits as dividends and business has been better in recent quarters. But this is a volatile industry, especially as the delta variant slows down economic activity here and abroad.

In the past 12 months, the stock has lost 24%, so its hefty 7% dividend doesn’t justify adding it to your dividend stocks buy list yet. ETRN is up 7% year-to-date, but that progress doesn’t guarantee much right now.

This stock receives a Dividend Grader D rating.

Physicians Realty Trust (DOC)

CLOV stock: stethoscope laying atop medical papers

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On the one hand, there’s a massive demographic shift going on as baby boomers start to hit their retirement years. It means more medical oversight and support both for acute illnesses as well as chronic disease.

This is why DOC has been so popular. It’s a healthcare REIT that has been one of the more popular dividend stocks for a while now. But it’s currently trading at P/E near 55x and is barely in positive territory year-to-date or for the past 12 months.

Granted, it has a hefty 5% dividend, but given current issues with the pandemic, hospitals, urgent care facilities and other healthcare operations aren’t operating under normal conditions — or staffing.

Plus, that outsized dividend along with its huge P/E makes this REIT a dividend stock to avoid for now.

This stock receives a Dividend Grader D rating.

Dividend Stocks to Avoid: Entergy (ETR)

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Generally, when you’re putting together dividend stocks to avoid, you don’t find utilities on the list, especially during an economic recovery. But we’re not living in “usual” times right now.

ETR has been around since 1913, when it started as the Arkansas Power Company. Today, it has 3 million customers and operations in Arkansas, Louisiana, Mississippi and Texas. The stock has a $22 billion market cap, has gained 9% year-to-date, and has an attractive 3.5% dividend.

What’s not to like?

Well, it’s the second-largest nuclear power generator in the U.S. And most of its facilities are old and at the point where they may need decommissioning. Its Vermont Yankee nuke, built in 1972, has been ordered to shut down. Others may follow. And decommissioning is expensive and alternative power sources aren’t cheap either.

Add to this risk the loss of revenue from its service-based states that are seeing the lion’s share of the delta outbreak. The risks aren’t worth the potential upside.

This stock receives a Dividend Grader C rating.

On the date of publication, Louis Navellier has no positions in the stocks in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (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.

Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.


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