A balanced investment portfolio contains a mix of stocks, including dividend stocks. Even in a high-growth portfolio, those dividends come in handy. They provide regular payments that can be reinvested, or used to supply cashflow. In addition, companies that pay dividends tend to be established and lower risk.
However, that’s not always the case. You do have to exercise caution when choosing dividend stocks. Sometimes companies that are in trouble will use a generous dividend to attract investors. New companies will occasionally offer a dividend, but with little history there’s no assurance the practice will continue.
Other times, a high dividend yield could be disguising a falling stock price. My Dividend Grader is a valuable tool for separating the wheat from the chaff. The dividend stocks on this list might look interesting on the surface, but each gets a failing grade. That’s a warning to stay away.
- Dominion Energy (NYSE:D)
- Hess (NYSE:HES)
- Plains All American Pipeline (NASDAQ:PAA)
- Pegasystems (NASDAQ:PEGA)
- Texas Pacific Land Corp (NYSE:TPL)
- Vornado Realty Trust (NYSE:VNO)
- Zimmer Biomet (NYSE:ZBH)
You should definitely have some dividend stocks in your portfolio. Just not these ones.
Dividend Stocks to Sell: Dominion Energy (D)
Virginia-based Dominion Energy is a large company that distributes electricity and natural gas to over 7 million customers across 16 states. It also operates 14,000 miles of natural gas pipelines and owns 1.2 trillion cubic feet of natural gas and oil reserves. Its roots go back over 100 years. It operates a massive LNG (liquid natural gas) terminal on Chesapeake Bay.
Dominion currently offers a 3.42% dividend yield. So why is it on the list of dividend stocks to avoid? The company’s latest quarterly dividend payout was 63 cents per share. Through much of 2020, it was 94 cents per share. In 2019, it was 92 cents. In addition, D stock is currently trading in the $74 range — right where it sat 5 years ago. In its latest quarter, Dominion missed revenue estimates badly, reporting revenue down 11.9% year-over-year.
A stock price that’s going nowhere, declining revenue and a dividend that has been slashed. Not a pretty picture for those looking to add blue chip dividend stocks to their portfolio.
At the time of publication the Dividend Grader rating for D stock is “F.”
Hess Corporation is another American oil and gas company. It once operated a chain of gas stations as well, but sold that business in 2014 to focus on exploration and production.
With the push toward a zero emission future and incentives for consumers to buy battery-powered electric vehicles, oil and gas companies face a hazy future. The production side of the industry is having a moment right now, but that’s expected to be a hiccup in the grand scheme of things. President Biden has put a halt to new oil and gas leases on federal land and waters, but there’s little impetus for oil and gas companies to invest in exploration.
In other words, an investment in HES stock is an investment in an industry that has — at best — an uncertain future. Reflecting that reality, Hess has avoided hiking its quarterly dividend for the better part of a decade and skipped it altogether a number of times in recent years. It currently sits at 25 cents per share and it has been the exact same amount since September 2013. Hess declined to pay dividends at all through much of 2020, and made only three payments in both 2018 and 2019.
An industry in decline, a static dividend payment and a history of skipping dividend payments altogether. That’s not a good mix if you’re looking for dividend stocks.
HES stock rates poorly as a dividend stock, earning an ‘F’ in Dividend Grader.
Dividend Stocks to Sell: Plains All American Pipeline (PAA)
Plains All American Pipeline owns and operates a large network of pipelines and storage terminals used for the transportation of oil, natural gas and LNG. The company operates in the U.S. and Canada. PAA says that on an average day, it will transport more than 5 million barrels of crude oil and LNG through its network.
Investors looking for dividend stocks will immediately take note of Plains All American Pipeline’s very tempting 7.27% dividend yield. They shouldn’t fall for it.
Even though the company’s quarterly dividend payment has been falling for years (from over $1 in 2012 to the current 18 cents per share), the dividend yield has remained high. That’s because PAA stock has been in the dumps. Over the past 5 years it has lost 70% of its value.
It’s yet another oil and gas industry stock with a big red flag. The Dividend Grader rating for PAA stock is a lowly ‘F.’
Pegasystems develops customized software solutions for business customers. The company uses real-time AI and and intelligent automation, and it has been hired by many large enterprise customers as well as government organizations like the U.S. Census Bureau. Pegasystems has been in business since 1983, and publicly traded since 1996. PEGA stock has rewarded investors with 210% growth over the past 5 years. Over the past decade it has chalked up a 600%-plus gain.
PEGA stock would be a solid addition to a high-growth portfolio. But as a divided stock? Terrible idea. Pegasystems began paying a 3 cents per share quarterly dividend years ago. The problem is it has kept that 3 cents payment. Today, that equates to a laughable 0.1% dividend yield.
At the time of publication, PEGA stock earned an ‘F’ rating in Dividend Grader.
Dividend Stocks to Sell: Texas Pacific Land Corporation (TPL)
For the past 100 years, Texas Pacific Land Corporation has been managing over 800,00 acres of land in Texas. Its primary business is collecting oil and gas royalties. It also operates a water-related business that deals with issues like water sourcing and infrastructure on that land. TPL stock has delivered an impressive return of 335% over the past 5 years.
However, when it comes to dividends, TPL is a non-starter. Its latest quarterly dividend payment of $2.75 resulted in a 1.47% dividend yield. That’s relatively modest, but the bigger problem is the sporadic nature of the dividend payments. Since 2012, the company has only made 13 dividend payments. The $26 per share it paid out (over two payments) in 2020, is far more than the $11 (in four quarterly payments of $2.75 per share) made in 2021.
You want some consistency and a track record in a dividend stock, and TPL offers neither of those. The current Dividend Grader rating for TPL stock is ‘F.’
You might recognize real estate investment trust Vornado Realty Trust as one of the central players in the collapse of retailer Toys “R” Us. Or as the co-owner (with Donald Trump) of several high profile office towers in New York and San Francisco.
Investors looking for dividend stocks will have spotted Vornado’s attractive 5.03% dividend yield. However, buying Vornado shares because of that dividend yield would be a mistake.
It’s no secret the company is under financial pressure because of the pandemic. It took a big revenue hit as companies renting space in its properties closed down, and the commercial real estate market remains weak. It has been downgraded by credit rating services. And while VNO stock is showing modest gains in 2021, it’s down 49% over the past 5 years. That slumping stock price is actually responsible for the high dividend yield. Recent quarterly dividend payments of 53 cents per share are well below 2013 levels of 73 cents per share.
The most recent Dividend Grader rating for VNO stock is ‘F.’
Dividend Stocks to Sell: Zimmer Biomet (ZBH)
Indiana-based Zimmer Biomet produces a wide range of biomedical devices, including replacements for knees and hips. The company has a 90-year history, a $27 billion market cap, and a long history of paying quarterly dividends.
However, before you jump on Zimmer Biomet as a dividend stock, there are red flags. First, ZBH stock has provided poor returns over the past 5 years, just 22%. So far in 2021, it’s down nearly 16%.
More importantly, in the context of dividends, the company is pretty stingy. The current 24 cents per share dividend payment has been in place since 2016. At this point, that gives ZBH a lowly 0.24% dividend yield.
ZBH stock is a poor choice among dividend stocks, with its ‘F’ rating in Dividend Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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