3 dividend stocks to avoid in 2014

Don't own these clunkers next year. They're part of an asset class that will perform poorly.

By Traders Reserve Dec 26, 2013 9:28AM

File photo of an AT&T Wireless store in Philadelphia, Penn. (© Matt Rourke/AP)By Jamie Dlugosch

At this time of year we hear lots of talk about what we should be buying. How about telling investors what they should sell or avoid?

If I think about the best ideas I have come up with over the years, the single greatest has to be my literal pounding on the table for investors to sell stocks just before the market crumbled during the fiscal crisis of 2008. The funny thing is I have had so many more great buying recommendations, and yet it is the sell recommendation that I remember the most.

In that spirit, then, I can think of one asset class I would avoid entirely in 2014: dividend stocks.

We hear so much about bubbles and all that sort of nonsense after a strong market rally and the eclipsing of important numeric barriers like Dow 16,000 or Nasdaq 4,000 but we never hear little about the skyrocketing valuations in dividend stocks.


In 2013, many dividend stocks caught a bid and kept on soaring throughout the year. That makes sense given the historically low interest rate environment. In addition, many dividend stocks were considered safe havens for many investors that were concerned about an economic collapse or possibly worse.

Dividend stocks: worst asset class for 2014

The truth is the economy is in fine shape. As the year closes out, we are getting revised economic data that shows economic growth to be even better than originally thought.

The Federal Reserve is taking action to remove monetary stimulus by reducing its bond-buying program. Most believe interest rates in 2014 will be going up.

Put it all together and dividend stocks are likely to be the single worst asset class for 2014.

I can think of 3 stock names in particular that I would avoid.  Keep these clunkers out of your portfolio:

AT&T (T)

The mustard is already coming off this hot dog. Shares of AT&T have collapsed after peaking at a price of $39 per share this past spring. Along the way down, however, the stock found a bid from investors attracted to the 5 percent dividend. Don't be one of those investors. Analysts expect the company to grow profits by 8 percent in 2014. At current prices, shares trade for 13 times 2014 estimated earnings.


I don't think it's ever a good idea to pay a double-digit multiple of earnings when a company is growing profits at a single-digit clip. It is hard to see where the catalyst for future growth will be for AT&T. The smartphone phenomenon has essentially run its course

AT&T will be lucky in my opinion to grow profits by 8 percent next year. I would definitely avoid this stock in 2014.


For some reason, certain companies can attract buyers no matter the circumstance. I would put Symantec in that category. Shares have gained nearly 20 percent this year even as Symantec's prospects deteriorated.

The demise of the personal computer is the major problem for the company. Smart phones and tablets simply do not have the same security concerns, thus the revenue opportunities are going to be lower going forward. Analysts are being generous with an expectation of 7 percent profit growth in the next fiscal year ending March 2015.


At current prices, shares trade for 13 times current fiscal year estimated earnings. A near-3 percent dividend yield is not enough to justify the risk here. I think this stock could be the worst-performing stock of the year.

Cliffs Natural Resources (CLF)

This coal company saw a decline in share value last year. The selling will likely continue in 2014.


From an energy perspective, the death of coal may have finally arrived. It’s a dirty, nasty and disgusting fuel source. The boom in natural gas as a reliable alternative has precipitated the fall. I'd be concerned about that 2.5 percent dividend. That’s really the only reason to own this stock and that number does not compensate for the collapse in profits here. Analysts expect the company to earn $3.01 per share this year. Next year that number is sliced by a third to $2.01 per share. I wouldn't pay a double-digit multiple for this profit stream. It will likely get worse before it gets better.


Dividend hunters can find yield elsewhere and in 2014 there will be more options to choose from.

More from Traders Reserve



Dec 26, 2013 1:41PM
Interesting article, except that Cliffs Natural Resource is not a coal company, they obtain 15% of sales from metallurgical coal (with a very small amount from other coal.) Most comes from iron ore shipments, which may or may not improve. Only goes to show that even articles by "experts" should
not be taken at face value.  Who fact checks these guys?
Dec 26, 2013 12:10PM
Merry morning after, people.

I agree with this article EXCEPTING (T)....

1.  Folks will always need power and comms.
2.  Those particular stocks almost always pay higher dividends.
3.  Where else will one receive 5 percent on their principal these days?

The other two can be dispensed with easily.  In fact, just stick
them up FAT CAT'S posterior if you can get his head out of the way.

Dec 26, 2013 8:37PM
Every year, some doomsayer wails about how T is about to crash on the rocks. Every year they're proven wrong. The company's strong numbers underscore their foolishness.

T is selling for $4 a share off its peak. It's hardly "crashed." Jamie Dlugosch needs to learn the difference between objective reportage and subjective ranting; he confuses the latter with the former.
Dec 26, 2013 10:33PM

I've owned "T" for a long time now. Ten years ago it was paying $.31/share quarterly dividend, today, it's $.45/share. Back then there were articles, like this one, stating AT&T had run its course; there was no where to go from here.

So while the "experts" advised selling "T" back then, I've pocketed $16 in dividends plus a 60% increase in share price since then. Maybe 2014 will be a lackluster year for AT&T, maybe not. But with $26 billion in retained earnings and $10-12 billion in pretax profits against around $2 billion in quarterly dividends, it ain't going anywhere regardless of what happens in 2014.

Looks more like a long term buying opportunity to me.

Dec 26, 2013 2:17PM
It's pretty easy to spot a Democrat sympathizer, as they have their "tells", such as two of Jamie Dlugosch's statements:  "...the death of coal may have finally arrived. It’s a dirty, nasty and disgusting fuel source," and, "The truth is, the economy is in fine shape."  First of all, how hyerbolic is it to call coal "dirty", "nasty" and "disgusting"?!  Really, disgusting even?  Pretty easy to see Mr. Dlugosch has been unduly influenced by the man-made global warming arguments that paint the burning of most fossil fuels as leading to a cataclysmic end-of-earth scenario.  You can see the gladness in Mr. Dlugosch's word choice that the death of coal may have "finally" arrived.  The fact is, we still need coal.  And, we have all benefited from it, even Mr. Dlugosch, who wishes for its demise and its irrelevance.  Couldn't we be a little bit grateful that we had heat and air conditioning and electricity for all these years, and still have those things thanks to coal?  Yes, there are pollution issues with burning coal--not global warming, but rather mercury deposition, acid rain, and particulates harming our lungs.  However, coal can be burned in much cleaner ways than in the past.  Is it disgusting that Solyndra took 550 million  of our dollars (that's half a billion dollars, Mr. Dlugosch) and frittered it away and is producing no energy whatsoever for Americans to use?  Would you rather we freeze to death?  Secondly, the economy may be growing modestly despite our power brokers' unwitting attempts to undermine it, but the economy is not "in fine shape". Unemployment is still unreasonably high, transfer payments to those on government assistance are at serious recession levels, and businesses are reluctant to make investments in more employees and other growth initiatives in part because of the uncertainty created by Obamacare and because of the actual rules Obamacare has put in place.  Regarding dividend stocks, with our government keeping interest rates historically low for years on end, people need to get a return for their savings (yes, there are still people who save and don't want to take government transfer payments), and so there will continue to be a demand for dividend stocks for the foreseeable future.  You may have singled out three dividend stocks with problems (and two with already low yields), but these are not generally indicative of a problem with dividend stocks and especially not enough for you to make a case to downgrade the whole asset class.  Stocks with real earnings that can pay real dividends to shareholders will not go out of style nearly so quickly as you predict.  Will such stocks ever go out of style?  What's not to like?  These stocks are self-sufficient and allow their shareholders to be more self-sufficient.  
Dec 26, 2013 12:10PM

There are plenty of fairly safe high-yield dividend stocks... why mess around with 3% yields? I personally prefer to invest in a 8%+ dividend stock and buy put options as an insurance policy against stock price drops. I currently hold PSEC and still get 7% yields with no more than 10% of my money at risk. I can live with that.

Dec 26, 2013 3:19PM
MO  Altria is a very good dividend stock.Very stable price and very solid dividends.
Dec 26, 2013 5:03PM


Good old MO.  Been holding MO for years.  Some say bonds are the house you live in, I say Marlboros are the house you live in.


And, of course, oil.





Dec 27, 2013 1:17AM
That "dirty, nasty and disgusting fuel source" has kept the lights on all across America for the last 80 years or so.  I doubt folks will be willing to give up electricity just because it comes from coal.  Fuel sources regardless of type go through boom and bust cycles.  In my state we have as much coal as natural gas so I've seen it first hand.  What do you think will happen once natural gas prices start to rise?  Do you think the majority is willing to pay double the price just to have it come from supposed "clean" sources.  By the way, every energy source is harmful to the environment in some way.  Even wind mills that kill birds and other animals that may stray onto the turbines, including endangered species.  I would much rather have a coal fired plant supplying power than to see 20 eagles a year killed by a wind turbine.
Dec 26, 2013 10:28PM
"Put it all together and dividend stocks are likely to be the single worst asset class for 2014."

Put what all together?  Studies show that over 1 decade periods, in good times and bad, those who buy sector-leading dividend stocks outperform the market by 2% per year.

"Analysts expect the company to grow profits by 8 percent in 2014. At current prices, shares trade for 13 times 2014 estimated earnings.

 I don't think it's ever a good idea to pay a double-digit multiple of earnings when a company is growing profits at a single-digit clip."

Anyone else think that paying a P/E of 14 for a stock with 8% growth + 5% dividends is a bad idea?  And a stock that does that is a "clunker"?  I don't know about your math skills see it, but any fund manager who whose (growth + yield)/(P/E) ratio is 0.93 on average will end up #1 on next year's list.

Dec 26, 2013 12:04PM


Good old Disney.  Went and saw Saving Mr. Banks yesterday.  Wonderful film with top-notch acting.  Tom Hanks was perfect in the role of Walt Disney.


And we're headed for a 17,000 Dow.  Inflation, inflation.



Dec 26, 2013 9:41PM

AT&T (T) the widow and orphan stock of Decades ago, may not be in rocket mode growth;

But to consider waste canning it, is not practical if you are looking for a solid and safe dividend..

T is not the Ma Bell of years ago, but still a stable and staple of Telcom Entities.

Several of the old operating companies "combined back" with a mixture of offerings..

I do not think Jamie Dlugosch, was abandoning them, just not recommending anymore accumulation in the near future...They are what I consider a viable Company and Stock at this time.

Just probably not too much growth in near future...(parroting what JD wrote).

Dec 27, 2013 1:45AM
Bond is bad, money market has no interest, dividend stock is to be avoided.  Where should income oriented investor do?
Dec 26, 2013 10:36AM
"Over the River and through the Woods to Gr......."
Dec 27, 2013 12:35AM
A very good article. 

It is no wonder the forum morons are poor. Listen to their ideas for investments. Old clunky companies whose only attraction is a miserable dividend and at best very weak growth. They should learn what the PEG ratio is ( P/E/Growth rate). Take ATT for example. The ratio is 13/8 = 1.625. Not much opportunity there for any capital gains.

We have been in a 5-year bull run, and this is the best they can do? Well no guts no glory or no risk no reward. This 5-year period has been the absolute best time to throw caution to the wind and take on risk. 

I'd never buy a company for a dividend. I only want companies that retain their earnings in order to grow and get some big capital gains. 

It isn't surprising. At the bottom of the bear market, these clowns sold all their stocks and bought bonds. Recently their have been big out flows from bond funds. I guess the morons think it is time to buy stocks? We could have a market melt up if they do.

These character are still living in the 19th century.   

Yuk yuk!
Dec 26, 2013 11:09AM
Good article, however I could care less about dividends always sticking to growth as my major investment theme.

With rates moving up as they will during an improving economy, there are many kinds of dividend stocks to avoid especially those with heavy debt and big capital needs. Electric utilities come to mind, since they continually need to raise capital.

Anyway, this is no time to be timid considering we are in The Mother of All Bull Markets!

Yuk yuk!
Dec 26, 2013 1:04PM
Nearly every day my portfolio increases in value to buy a new Benz sometimes two!

Yeah little fellows you stick with them dividend stocks. Oh lordy you have brought me great fortune and ever increasing wealth. But I expected such being a Rich God Fearin' Republican.

Also you have given me a constant source of entertainment - the forum morons. They are a bumbling confused lost bunch of poor souls - Yuk yuk!

However, there are a couple among this group of idiots who are fine upstanding fellows - Crazy 8 and ABS both true American patriots. 

Yuk yuk!
Dec 26, 2013 11:41AM

Our right wing media won`t tell us how great the economy is.Can you imagine if these stock

market records happened with a Reubs in the WH?They would shout it from the rooftops

every 2 seconds.

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