7 Dividend Stocks to Avoid in the Rotation to Safety


dividend stocks - 7 Dividend Stocks to Avoid in the Rotation to Safety

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The recent sector rotation we’ve been experiencing comes from the combination of unfettered growth with low borrowing rates, lots of money in the system and a rebounding economy. All these factors put together meant all sorts of growth stocks trumped almost any dividend stocks.

But that’s all changed.

When rates started to rise and all that easy money now had to be shifted to rising commodity prices, the stock market started to shift. Then, pandemic-related supply chain problems added to the mess.

Stocks are forward looking indicators. They anticipate where the markets will be in six to 12 months. And that’s about when institutional investors started rotating out of the no-earnings, high-growth bets and started buying up bonds, dividend stocks, and growth stocks with a positive earnings history.

In the beginning, the shift was macro. Money moved from one sector to another. Now we’re in the second stage, where investors are fine tuning their new picks. These stocks aren’t among them because their dividends aren’t reliable:

  • AGNC Investment Corp (NASDAQ:AGNC)
  • Fortive Corp (NYSE:FTV)
  • Vail Resorts (NYSE:MTN)
  • National Health Investors (NYSE:NHI)
  • Pegasystems (NASDAQ:PEGA)
  • Sabra Health Care REIT (NYSE:SBRA)
  • Zimmer Biomet (NYSE:ZBH)

Dividend Stocks to Avoid: AGNC Investment Corp (AGNC)

A concept image showing the words "mortgage backed security" written on a street.

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While organized as a real estate investment trust (REIT), AGNC doesn’t manage or own any properties. It trades mortgage-backed securities (MBS). But that allows it to take on the tax-advantaged status of REIT.

But unlike most REITs, it trades on Nasdaq, not NYSE. That may well be so it can separate itself from other REITs to appear more like a financial services firm. In the boom years, trading MBS is a very good living. But when rates rise, home buying slows. And that’s not good for the MBS industry. Plus, MBS trading isn’t exactly the easiest game in town. While AGNC’s portfolio holds a lot of debt that’s underwritten by government-sponsored enterprises (GSEs, like Fannie Mae), it also holds high risk/high performance unsecured debt.

Even if just that piece of the portfolio starts to unwind, it won’t be good for the stock, or its sky-high dividend.

Right now, AGNC’s dividend is sitting at 11%. But the stock is down 14% in the past 3 months, and 22% in the past 12 months. And this divergence may get worse before it gets better. And when it does, that fat dividend will be at risk, too.

This stock has an “F” rating in my Dividend Grader.

Fortive Corp (FTV)

doctors posing. retirement stocks

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Established in 2015, this conglomerate with a $22 billion market capitalization is split into three operating divisions: Advanced Healthcare Solutions, Intelligent Operating Solutions and Precision Technologies.

FTV is a spinoff of life sciences giant Danaher (NYSE:DHR). When DHR decided to solely focus on life sciences companies it had accumulated, it spun off its other businesses to FTV.

In recent quarters, FTV has been adding to its healthcare focus. The FTV portfolio is full of strong global companies in their respective sectors, but its broad portfolio also makes it risky in the current market. And its recent $20 million stock buyback program may simply be a move to keep the stock higher until earnings strengthen.

FTV stock is down 19% year to date and it has a paltry yield that isn’t reliable at this point.

This stock has an “F” rating in my Dividend Grader.

Dividend Stocks to Avoid: Vail Resorts (MTN)

Skis basking in the sun atop a snow-covered mountain.

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Last year, everything looked good for a MTN rebound. The delta variant was waning, travel was growing, the economy was strong, business was looking up. But then the Great Resignation rose, omicron hit, and the snow season was pretty bad.

At this point the stock is trading much closer to its 52-week lows than highs and analysts have been consistently cutting their price expectations on the stock. It reacted by raising its dividend to attract more long-term money.

But the spring ski season is almost over. And hiring is tight and expensive for service sector jobs. That raises operational costs as do higher energy prices to run and operate equipment. That’s quite a challenging situation.

MTN stock has lost all its gains over the past 12 months, and the selloff is increasing. It’s down 22% in the past 3 months. Its 3% dividend isn’t worth the risk of a cut down the road, and there are plenty of safe dividends with the same yield.

This stock has an “F” rating in my Dividend Grader.

National Health Investors (NHI)

retirement stocks an older couple sitting on a dock and looking at a pamphlet

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This REIT is focused on senior living properties as well as medical facilities that are complementary to those residential properties. This sector has been hot for quite a while given the large number of graying boomers that are transitioning into senior living environments.

But the trouble is, there’s now trepidation from seniors about group living because of the pandemic. And with inflation rising quickly, facilities are becoming increasingly difficult to afford. That puts margins under pressure for NHI, since costs rise, yet the customers are usually very price inflexible.

With a market cap of $2.7 billion, NHI has to be very focused to continue services at a decent level while not pricing out its base in the process. And rising at-home service companies are going to pressure this sector post-pandemic as well.

NHI stock has lost 21% in the past 12 months, and its 6.2% dividend still puts investors in the red. When that happens, that dividend may end up getting cut, which is why it ends up on this bad dividends list.

This stock has an “F” rating in my Dividend Grader.

Dividend Stocks to Avoid: Pegasystems (PEGA)

A concept image of a person looking at several hexagonal icons representing concepts in customer relationship management (CRM).

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Launched in 1983, PEGA is a bit of a hybrid company. Broadly it can be defined as an enterprise software firm. But it was one of the first customer relationship management (CRM) companies. But since then, it has also become established in robotic process automation and business process automation.

Its $6.4 billion market cap certainly indicates that it remains a significant player in the game. But the challenge is, there are other much, much bigger players in the game. And that’s a challenge for recruiting coders and engineers when some of these spaces have been adopting competitors year after year.

Now the challenge is in how its clients and potential clients fare through the current market tumult. Some analysts are hopeful, others not so much. PEGA stock is down nearly 30% year to date, which isn’t good. And its dividend is nearly invisible at 0.15%, but even that isn’t a sure thing at this point.

This stock has an “F” rating in my Dividend Grader.

Sabra Health Care REIT (SBRA)

two people holding hands on an empty beach

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Like NHI, SBRA is a REIT that focuses on senior living facilities and the associated healthcare facilities and operations that complement those properties.

Yet looking at the stock, it seems to be doing well on the face of it. Plus its 8.5% dividend is certainly attractive, especially as inflation persists.

However, there are underlying challenges here. And that’s most evident in the 4% of short interest betting against the stock. That’s not outrageously high, but it’s pretty high for this sector.

Also, that generous dividend doesn’t help when the stock has lost almost 17% in the past year. As mentioned with NHI, there are plenty of headwinds for this sector, especially hiring and costs. That puts it on the bad dividends watchlist, since that’s where many companies turn to for cash if things get tight.

This stock has an “F” rating in my Dividend Grader.

Dividend Stocks to Avoid: Zimmer Biomet (ZBH)

robotic arms over medical bed symbolizing medical robotics

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While ZBH has been around since 1927, it has grown its operations considerably. Starting as a medical device maker specializing in aluminum splints — polio, other diseases and World War I made this quite a market — it has since grown into a global enterprise that has operations in more than 40 countries and sales in more than 100 countries worldwide.

Despite its longevity and reputation, its global reach made for a bad Q4 due to the rise of omicron, which hurt overall sales. Remember that hospitals and other facilities that buy ZBH medical devices were focused on the pandemic, not other typical operations, which means there’s less turnover in products. Staffing and distribution are also issues.

Also, pressure from competitors that are twice its size or more makes pricing a challenge. The stock has lost 20% in the past 12 months. Its 0.8% dividend may well come under pressure if something doesn’t give soon.

This stock has an “F” rating in my Dividend Grader.

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.

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