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 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:
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
- Get the latest report from Jamie Dlugosch: 10 Sizzling Stocks for 2014
- 5 mighty small-cap stocks for 2014
- 5 great stocks under $10
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.
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.
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.
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.
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.
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.
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).
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.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The solid report comes a month after the retailer closed all of its Canadian operations.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.