Undoubtedly, investors are getting nervous with ongoing concerns of higher interest rates, inflation, and a weakening economy.
However, one way to improve peace of mind is selling risky dividend stocks. For income investors, a dividend’s security is paramount. It’s time to get rid of these three ticking time bomb dividend stocks before they explode.
Brookfield Renewable Partners L.P. (BEP)
Brookfield Renewable Partners L.P. (NYSE:BEP) is a broadly diversified renewable power generation firm. Its assets span hydroelectric, wind, solar, distributed generation, pumped storage, cogeneration, and biomass.
While some of these, such as hydroelectric, have excellent economics, other parts of the business stand upon shakier footing. The wind market has convulsed over the past month recently. Specifically, industry leader Orsted (OTCMKTS:DNNGY) plunged in value following a massive write-down of its American offshore wind business.
Then, the situation worsened this week. Fellow renewables company NextEra Energy Partners, LP (NYSE:NEP) abruptly lost a third of its value in two days as management slashed its future growth guidance.
It appears that the Inflation Reduction Act’s subsidies for the wind and solar sectors haven’t quite matched investors’ expectations. Wind and solar are still newer industries that rely on government aid for growth. The current political gridlock in D.C. further limits the future tax breaks that the sector may receive.
After seeing several big renewable energy companies plunge in value over the past month, investors should step aside before the next shoe falls. It’s only a matter of time until analysts question the sustainability of Brookfield Renewable’s dividend and growth plans given the problems its peers are facing.
Boston Properties (BXP)
Boston Properties (NYSE:BXP) is a leading office real estate investment trust (REIT).
In prior years, investors could count on office REITs to deliver steady cash flows and strong dividends. However, the pandemic changed everything.
Now, workers have become accustomed to using remote solutions rather than trekking into the office. Even firms that are returning to the office are often doing so for only three or four days per week. All this adds up to falling occupancy rates and lower rents for office buildings.
And Boston Properties faces another problem. It has more than $10 billion in long-term debt. As interest rates continue rising, expect BXP’s annual interest expense to rise by hundreds of millions as it refinances its older lower-cost debt.
Rising expenses combined with falling rental revenue are a toxic combination on a leveraged asset business model such as office REITs. The remote work storm is going to hit the office space hard. Boston Properties’ dividend may not survive at its present size.
Best Buy
Best Buy (NYSE:BBY) has surprised investors with its resiliency.
E-commerce has killed off a lot of specialty retailers. Best Buy’s electronics business would seem vulnerable to online competition from Amazon (NASDAQ:AMZN). That’s especially true as online ordering has largely eliminated former Best Buy product categories such as physical CDs, software, and DVD sales.
However, Best Buy’s in-person shopping experience and repair centers have proven useful to shoppers even in the digital age. The firm’s good luck may not last forever, though.
Electronic sales boomed over the past few years as people bought new computers and equipment to study and work from home. Sadly, that demand driver has passed. Now. computer sales are down sharply year over year (YOY).
More broadly, the economy appears to be weakening, and higher inflation is hurting consumers’ spending power. Also, product shrinkage is a mounting issue. Companies like Target (NYSE:TGT) are closing stores to address losses from theft and organized crime.
All of this adds up to a bumpy road ahead for BBY stock as it navigates this challenging environment. The firm may trim the 5.4% dividend yield given these headwinds.
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.
