7 Dividend Stocks at Risk of Cutting Payouts


  • These dividend stocks may look tempting, but there’s a good chance they can’t sustain their massive payouts.
  • Petrobras (PBR) – The oil company’s variable dividend policy means the current 34% yield won’t last.
  • Annaly Capital Management (NLY) – Mortgage REITs aren’t a safe harbor during a major rate hiking cycle.
  • AGNC Investment Corp. (AGNC) – AGNC is another mortgage REIT with a risky dividend.
  • ZIM Integrated Shipping Services (ZIM) – The 43% dividend yield here is unlikely to hold up amid pricing pressure.
  • Sibanye Stillwater Limited (SBSW) – Falling profit margins threaten mining company Sibanye’s outsized dividend.
  • Simon Property Group (SPG) – Mall owners aren’t a safe place to hide during an inflationary spiral.
  • EPR Properties (EPR) – This theater, ski resort, and water park owner could slump as consumer spending falls.

Dividend stocks are catching people’s attention because the stock market is exceptionally volatile right now. Until the Federal Reserve can get inflation under control, expect more wild swings in the weeks and months to come.

With uncertainty through the roof, investors are turning to dividend stocks for protection. That’s a logical reaction. Dividends are a source of shelter during unpredictable conditions.

However, it’s important to pick these dividend stocks wisely. A common mistake is simply to buy the companies with the highest trailing dividend yields. After all, a large income today can offset stock price volatility.

However, if the company in question doesn’t have sustainable profits to support its dividend yield, that income might not be so safe. A high trailing yield doesn’t necessarily mean that future returns will be so promising, particularly for firms in cyclical industries or which have variable dividend policies.

Here are seven dividend stocks to be wary of for the rest of 2022.

PBR Petrobras $12.08
NLY Annaly Capital Management $5.48
AGNC AGNC Investment Corp. $10.03
ZIM ZIM Integrated Shipping Services $48.80
SBSW Sibanye Stillwater Limited $11.02
SPG Simon Property Group $94.62
EPR EPR Properties $43.99

Petrobras (PBR)

the Petroleo Brasileiro (PBR) logo on a building during daylight
Source: A.PAES / Shutterstock.com

Petrobras (PBR) is Brazil’s state-run oil company. The company had an incredibly profitable year in 2021, and it’s off to another great start in 2022 as well.

The company has a variable dividend policy meaning shareholders get huge dividends when the company earns tremendous profits.

To put a number on that, PBR stock is currently offering an eye-catching 34% dividend yield. Alas, this dividend is unlikely to hold up for all that long. The current Brazilian government has slammed Petrobras for high fuel prices and meddled in the company’s operations. This could bring the current period of excess profitability to a sudden end.

Furthermore, Brazil has presidential elections coming up later this year. The front-runner in the polls is a socialist who is also likely to take a harder line on the oil company.

Throw in the possibility of energy prices retreating after their astounding run, and there are multiple ways that Petrobras’ current golden age among top dividend stocks could come to an end. PBR stock may continue to offer a high dividend yield, but the stunning 34% yield on offer today is unlikely to last long.

Annaly Capital Management (NLY)

Real estate investment trust REIT on an office desk.
Source: Vitalii Vodolazskyi / Shutterstock

Annaly Capital Management (NLY) is a mortgage real estate investment trust (REIT).

Many investors are familiar with equity REITs, which are the traditional firms that buy physical real estate such as offices and apartments and then pay out dividends from rents on those buildings.

Mortgage REITs, by contrast, buy mortgages and other financial instruments rather than actual physical buildings or land. They tend to be high-yielding dividend stocks.

Unfortunately, mortgage REITs have a spotty total return performance historically and have dramatically trailed equity REITs in returns. To that point, Annaly has actually been one of the better-performing mortgage REITs to date, and yet its shares have dropped from $19 to $5.50 between 2005 and today.

Over that same period, NLY stock did generate a positive total return thanks to dividends, but its performance has badly lagged other REITs and the S&P 500 more broadly.

Annaly finds itself in a mess once again as soaring interest rates have eroded the value of the firm’s assets. Annaly’s tangible book value has plunged from nearly $9 per share early last year to less than $6 per share now.

As a mortgage REIT’s ability to produce cash flow is derived from the size of its asset base in large part, this erosion of Annaly’s capital is likely to lead to a dividend cut sooner or later.

AGNC Investment Corp. (AGNC)

wooden houses, small business and arrow down, mortgage crisis, refinance home loan, property prices falling, financial meltdown, economy collapse and crash
Source: SewCream / Shutterstock.com

As with Annaly, AGNC Investment Corp. (AGNC) is another mortgage REIT under serious pressure. The mortgage REIT operators face a challenging set of conditions. The values of their mortgage-backed securities are sliding as interest rates rise.

In theory, AGNC is protected against that thanks to its interest rate hedges. However, things aren’t always that simple. Spreads have widened between mortgage securities and Treasury securities, making hedging more difficult.

As long as the Fed continues to raise interest rates aggressively, these differentials may continue to expand, putting a drag on AGNC’s book value and cash flows.

Yes, AGNC stock’s 13% dividend yield seems attractive on paper. However, it’s far from clear if it will be able to support the current level of payout as interest rates continue to rise. Many mortgage REITs trimmed their dividends in 2020, and this downturn seems likely to last longer than that one. Income investors should plan accordingly.

ZIM Integrated Shipping Services (ZIM)

A large ULCV container ship underway, sails on open water fully loaded with containers and cargo - the ZIM San Francisco
Source: ImagineStock / Shutterstock.com

Shipping company ZIM Integrated is offering what appears to be a shocking 43% dividend yield. Shares are also trading at a trailing P/E ratio of 1.

As you might expect, however, there’s more here than meets the eye. Namely, shipping prices went to record levels during 2021.

Prices have quickly retreated in 2022 as the world economy slows down and supply chains have started to normalize. Long story short, Zim may continue to be quite profitable, but it won’t keep earning at 2021 rates for long, nor is the 43% dividend yield likely to be sustainable.

Already, we’re seeing change on the horizon. The Biden Administration has slammed the shipping companies for charging high rates. In fact, Congress approved legislation to curtail shipping rates. Upon passage of the law, President Biden said:

“During the pandemic, ocean carriers increased their prices by as much as 1,000%. And, too often, these ocean carriers are refusing to take American exports back to Asia, leaving with empty containers instead. That’s costing farmers and ranchers—and our economy—a lot of money.”

When a sector makes so much money as to get Congress to pass laws curtailing its profitability, you know things have reached an extreme. As profits for shippers head back down, expect Zim’s dividend to be trimmed to more normal levels as well.

Sibanye Stillwater Limited (SBSW)

a construction worker looks on as an excavator gets to work in a mine
Source: Shutterstock

Sibanye Stillwater Limited (SBSW) is a company that mines precious metals along with base metals. It is based out of South Africa but also has substantial operations throughout the Americas.

Sibanye Stillwater took advantage of fantastic metals prices in 2021 and showered its investors with $1.30 per share in dividends over the past year. However, historically, Sibanye Stillwater has often paid minimal dividends or no dividends at all.

Investors shouldn’t expect last year’s dividends repeating in the future. That’s especially true as metal prices have dipped lately, meanwhile operating costs are up due to the surge in energy prices.

SBSW stock isn’t likely to maintain its 12% dividend yield for long.

Simon Property Group (SPG)

building facade of simon property group (SPG)
Source: Jonathan Weiss / Shutterstock.com

Simon Property Group (SPG) is the largest operator of shopping malls in the United States.

It also has some overseas properties, and it runs some alternative shopping center formats such as outlets.

With the recent collapse of various department stores and apparel chains, Simon has started buying up some retailers out of bankruptcy to help keep their stores from closing permanently.

Simon’s management team has done a valiant job trying to operate through the retail apocalypse. However, it’s just a brutal landscape out there for enclosed malls.

Department stores such as Sears and JC Penney continue to vanish, leaving Simon with a massive expense in trying to refurbish its properties. Meanwhile, the pandemic crushed a lot of smaller retailers.

Just as people were getting comfortable being out and about again, high fuel prices and crushing inflation threaten to wreck this holiday season. That’s all bad news for Simon’s 7.0% dividend yield.

EPR Properties (EPR)

An empty movie theater.
Source: Shutterstock

EPR Properties (EPR) is a leading experiential properties REIT. In English, that means EPR owns lots of places where people go to have fun. Historically, EPR has focused on movie theaters, though it is rapidly pivoting toward a broader line-up of properties as the movie theater industry has struggled. Nowadays, EPR owns water parks, skiing facilities, and gaming properties among other things in addition to its theater business.

This is all fine and well, however, it’s not an especially stable business. EPR had to suspend its dividend during the pandemic as the economy shut down. Now the dividend is back and currently set at a generous 7.2% level. But with fuel prices surging, people’s desire to drive to locations such as ski resorts and water parks may diminish considerably. Meanwhile, the threat of more pandemic-related disruptions still lingers. EPR may not be a bad investment, but its dividend isn’t a particularly stable one.

On the date of publication, Ian Bezek did not have (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.

Article printed from InvestorPlace Media, https://investorplace.com/2022/06/7-dividend-stocks-at-risk-of-cutting-payouts/.

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