Dividend Stocks To Avoid For Now

Author's Avatar
Mar 27, 2015
Article's Main Image

As an investor, your first focus would be to get maximum returns on your investment. This can be possible only if you invest in dividend stocks. Amongst the dividend stocks, there are few that are known as dividend aristocrats (stocks that have increased their dividends for 25 consecutive years or more). If prices are attractive, these dividend aristocrats would obviously be your first choice. However, the longevity of their dividends should not be the only criterion for you to take your decision. You must analyse their past performances, current capacity and future potential. If a stock doesn’t look like it will sustain in the long-run, or if there are better options available from the same industry, or if there is any other unfavourable reason, you should smartly stay away from it, even if it is a dividend aristocrat. The following are some of the stocks of this category that you need to avoid now, if you want good returns on your investment in the long run.

Exchange rate problems are not helping Coca-Cola

One of the first dividend aristocrats that experts ask investors to stay away from is the beverage giant, Coca Cola (KO, Financial). Though the company has been increasing its dividends for 53 years in a row now, the company is not a good stock to buy now. This is because the company suffered a lot due to currency rate fluctuations last year. The prices are currently quite high compared to the potential of this company. There are lots of chances that the prices will come down in future, so investors can think of investing in this stock then. The beverage market is not growing at the expected rate for the past few years as consumers all over the globe are becoming health conscious and switching over to other healthy options. If you think that Coca Cola’s partnership with energy drink major, Monster Beverage (MNST, Financial) and coffee brewing giant, Keurig Green Mountain (GMCR, Financial) will help its performance in the long run, you will have to wait for few more months or years as the stock is currently overpriced for its potential. The following is the stock movement of Coca Cola for the last few months:

03May20171132371493829157.jpg

Decreased customer confidence

The next dividend aristocrat that is not worth investing now is the retail major, Walmart (WMT, Financial). The retail giant which was a big name in the US not many years ago, is now facing severe challenges in the form of decreased customer satisfaction and competitors eating away its market share. Walmart is the lowest ranked in the retail industry when it comes to paying wages to labourers. This leads to dissatisfaction among its employees. If you visit a Walmart store, you might find that more often than not, you are left alone to find the stuff that you need by yourself. The service has gone pretty bad of late and Walmart stores are running out of stock of some of the most necessary things that customers want. The stores have been lacking quite heavily in terms of cleanliness and other issues as well, which has led to widespread negativity about them.

The top management, in a bid to bring back Walmart’s lost glory, has taken a small step in terms of increasing the minimum wages per hour for its labourers . However, there is still a long way to go for Walmart if it has to get back the customer satisfaction and brand reputation of the past. For these reasons, Walmart is a stock that you must avoid, even though the company has been increasing its dividends for 40 years in a row. The movement of prices of Walmart for the last year is seen below:

03May20171132381493829158.jpg

Conclusion

Analysing the big picture should always be your first priority when it comes to putting your money in the stock market. It is quite understandable that you would be tempted to invest in these stocks as they are big names in their respective industries and have been returning consistent returns to shareholders. The above stocks, though they are dividend stocks in their right, are overpriced for their current potential. The prices are expected to slump further in future; therefore, it is better to refrain from investing in these now.