Dividend stocks offer steady cash flow and the potential to generate long-term gains. However, “potential” is the key word, and some stocks don’t live up to expectations. While quarterly dividend payments are nice, they don’t mask underperformance. Some dividend stocks have trailed the S&P 500 for several years. While the yields are higher than most stocks, that’s not enough to justify a good investment.
It’s also not enough to justify an investment if the corporation is a household name. Some household names have become stagnant and rely on the iconic nature of their brands rather than releasing innovative products that attract new customers. This dynamic presents several obstacles for shareholders who seek to beat the market.
These stocks have all underperformed the major index for several years. Each of these stocks is also down year-to-date and have unimpressive financial growth. Wondering which dividend stocks investors may want to cut from their portfolios? These are the three underperforming dividend stocks to sell before the losses get worse.
Nike (NKE)
Nike (NYSE:NKE) has a 2% dividend yield and a 20 P/E ratio. While those numbers look decent on the surface, investors should pay attention to the company’s recent financial performance. Nike only delivered 1% YOY revenue growth. China was the top region with 3% YOY growth, but that’s not as good as it seems. Many American companies have lost market share in China as consumers have been drifting away from foreign corporations. That trend can impact Nike’s revenue growth in the region moving forward.
The low revenue growth makes it no surprise that Nike has consistently trailed the market. Shares are down by 26% year-to-date while dropping by 2% over the past five years. Nike managed to raise its quarterly dividend by 9% YOY. Now, investors receive a quarterly payout of $0.37 per share. That’s still not enough to compensate for the stock’s capital losses. Those losses should continue as competitors gain more market share.
Starbucks (SBUX)
Consumers have been pulling back on their Starbucks (NASDAQ:SBUX) purchases amid rising inflation. Revenue dropped YOY in two consecutive quarters, including a 1% YOY decline in the third quarter of fiscal 2024.
Global comparable sales dropped by 3% YOY, with China being a major weight on Starbucks’ earnings. The company has 7,306 stores in China, making it the company’s largest region outside of the United States. Revenue in China dropped by 11% YOY, reflecting the trend of U.S. companies struggling to gain and preserve market share in the country. This drop is even worse since Starbucks increased its Chinese store count by 13% YOY.
Starbucks’ lost ground in China may continue, and it’s going to weigh on earnings for several quarters, if not years. Inflation also hurt U.S. sales and global sales outside of China. Starbucks needs its other markets to grow and remain strong to counteract declining interest in China. So far, that’s not happening.
Comcast (CMCSA)
Comcast (NYSE:CMCSA) is the fourth-largest broadcasting and cable TV company, but its status as a household name doesn’t make the stock promising. Shares are down by 11% year-to-date and have shed 9% of their value over the past five years. A 3.17% yield doesn’t soften the blow of underperformance, and financial stagnation suggests limited upside or more downside.
NBC’s parent company reported a 2.7% YOY revenue decline in the second quarter. Meanwhile, net income dropped by 7.5% YOY. While Comcast may receive a short-term earnings boost from the Olympic Games, the trend of low or declining YOY revenue growth has become common.
Comcast and other big media firms are adapting to the streaming industry, but the results aren’t that captivating. Yes, Peacock delivered 28% YOY revenue growth in the second quarter. That’s a good growth rate, but total revenue only came to $1.0 billion in the quarter. That’s only a tiny sliver of the company’s $29.7 billion in Q2 2024 revenue.
Streaming makes up a small percentage of total revenue which gives it a muted impact on overall revenue growth metrics. Peacock reported an adjusted EBITDA loss of $348 million in the quarter, compared to $3.93 billion in net income. Adjusted EBITDA losses are usually more favorable, so it’s easy to assume that Peacock had a much higher net loss than $348 million.
On the date of publication, Marc Guberti 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
