In my view, there are few things as disappointing as a list of dividend stocks to avoid.
Dividend stocks are supposed to be the secret sauce to your portfolio. They give you an added incentive to hold stock because you can reinvest those dividends and increase your holdings even faster.
If you are in retirement, an outstanding dividend stock can give you the income you need to have a comfortable life.
But when dividend stocks underperform, that’s a sad moment.
An underperforming dividend stock can disappoint by not giving a decent return on the investment, either through a dividend yield or because the stock price is falling so fast that the yield is a wash.
If your dividend stocks are underperforming, you’re just wasting your time because there are likely plenty of other growth stocks you can hold that is worth the time and effort.
The Portfolio Grader unearthed a few of these dividend stocks to avoid. Some reconsideration is in order if you have any of these in your portfolio today.
|FRC||First Republic Bank||$3.51|
|CVS||CVS Health Corporation||$73.27|
|JNJ||Johnson & Johnson||$163.19|
First Republic Bank (FRC)
Ally Financial (ALLY)
Fortunately, Ally Financial (NYSE:ALLY) isn’t in the same situation as First Republic, but it’s still on my list of dividend stocks to avoid.
Ally makes most of its money on interest from loans, in particular auto loans. At the end of last year, it was at $113 billion in auto loans and leases and a combined $33 billion in all other categories, including mortgages, credit cards and corporate finance.
Moves by the Federal Reserve to raise interest rates to combat inflation make buying or leasing a car much less desirable. And that’s going to weigh directly on Ally’s bottom line.
If you hold ALLY stock, you’ve already felt some pain. The stock is down 24% since mid-February, and it will be quite some time before interest rates make purchasing or leasing a car more attractive.
Even though Ally has a dividend yield of more than 4%, this dividend stock is disappointing. It gets a “D” rating in the Portfolio Grader.
CVS Health Corporation (CVS)
On the surface, you might think that CVS Health Corporation (NYSE:CVS) would be a fine stock. The company operates more than 9,600 pharmacies in the U.S. and has a reputation as a solid healthcare provider.
Last year, it recorded $322 billion in total revenue, including $17.5 billion in operating income.
But that’s not translating into the stock price, which is down 22% so far this year, and by 29% over the last 12 months.
Analysts are already predicting a disappointing earnings report when CVS reports for the first quarter early next month.
The consensus estimate is that CVS will have earnings of $2.10 per share, a drop of more than 5% from a year ago. TD Cowen analyst Charles Ryhee lowered his price target for CVS from $118 to $111, citing lower near-term adjusted EPS growth.
CVS will provide full-year guidance when it reports earnings on May 3. But until then, approach this dividend stock with caution. CVS has a “D” rating in the Portfolio Grader.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is another well-known blue-chip dividend stock. The company makes everything from mouthwash to Band-Aid bandages, women’s health products, allergy medications and pain suppressants.
But having a great product line doesn’t guarantee sales or a rise in stock price, even when selling what would be essential consumer products.
Part of the problem, when you’re as big as JNJ, is that you find yourself in court a lot, and sometimes the lawsuits can weigh heavily on a stock. Johnson & Johnson is battling over 40,000 claims that the company’s baby powder caused cancer, and it’s in arbitration over a claim with its Janssen Pharmaceutica subsidiary.
Raymond James analyst Jayson Bedford wrote this month that the legal issues are weighing down JNJ stock, which is down more than 4% this year.
JNJ has a dividend yield of 2.9%, but the stock is a disappointment. It gets a “D” rating in the Portfolio Grader.
Sirius XM (SIRI)
Satellite radio company Sirius XM (NASDAQ:SIRI) has seen better days. Shares are down 37% this year to push Sirius into penny stock territory at less than $4 per share.
I’m not expecting much to change, either. The company put out weaker-than-expected 2023 guidance based on projections of weak consumer spending and lowered expectations for auto sales.
The cost-cutting is already underway. Like other tech companies, Sirius is laying off staff (475 jobs, or 8% of the workforce) in a move expected to touch every part of the company.
One word of caution – Sirius XM is primarily owned by Liberty SiriusXM Group (NASDAQ:LSXMA), which has an 82.4% interest in SIRI stock. Citi analyst Jason Bazinet points out that the overhang of a potential merger with Liberty SiriusXM will continue to hang over SIRI stock.
SIRI has a “D” rating in the Portfolio Grader.
Johnson Outdoors (JOUT)
Johnson Outdoors (NASDAQ:JOUT) is a stock for those who appreciate the great outdoors. The company makes camping equipment, trolling motors, fishing gear, SCUBA gear and watercraft.
But the stock isn’t coming close to treading water, at least so far this year. JOUT stock is down 14% in 2023, which isn’t nearly enough to support a dividend yield of 2.1%.
Also somewhat troubling is the company’s earnings performance. While it met earnings expectations in the last quarter, Johnson Outdoors is seeing its EPS fall in recent quarters.
It plunged from $1.40 per share in the third quarter of fiscal 2022 to 95 cents in the fourth quarter and 58 cents in the first quarter of fiscal 2023.
JOUT will report second-quarter earnings on May 5. It has a “D” rating in the Portfolio Grader.
Equity Bancshares (EQBK)
Equity Bancshares (NASDAQ:EQBK) is a regional bank headquartered in Wichita, Kansas. It has locations in Arkansas, Kansas, Missouri and Oklahoma.
Like other regional banks, Equity Bancshares is having a rough year. The challenges facing First Republic and the failures of SVB Financial Group (OTCMKTS:SIVBQ) subsidiary Silicon Valley Bank and Signature Bank (OTCMKTS:SBNY) haven’t helped.
Regional banks have less oversight from federal regulators as do the big banks and therefore are facing increased investor skepticism. While Equity Bancshares have deposits primarily from community markets and not from the start-up tech community like Silicon Valley Bank, the stock price is taking a hit and is underperforming.
EQBK has a dividend yield of 1.7%, but that’s not appealing when the stock price is down as much as this. EQBK stock has a “D” rating in the Portfolio 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.