On the back of yesterday’s five dividend stocks to own, I wanted to find and highlight some not to own, even to sell and liquidate if you do happen to own them. The follow is a list of what may look like high-yield value opportunities, which are stocks that have a dividend yield of 5% or higher, that will pay you to wait as the stock bounces. Under further investigation, however, the fundamentals tell a different story.
Barnes & Noble Inc. (BKS, Financial)
Price: $7
Yield: 8.57%
Either the company is working on something that will rejuvenate sales or it simply took on debt to pay out the dividend to keep the market value up. The one saving grace may be to sell out to Amazon (AMZN, Financial) or someone else that could use its assets. There is no way investors should expect this kind of dividend (60 cents per share) for long, especially without the company getting back on track with earnings and sales growth. Its profit margins and return on equity are dismal and the size of its bookstores make it rather difficult to make money. If you are speculating on this falling knife, do not get too attached to the dividend.
AmeriGas Partners LPÂ (APU, Financial)
Price: $43.66
Yield: 8.7%
AmeriGas is the largest retail propane distributor in the U.S. and has a solid moat around that business. The business, however, has been declining for years and you can have a moat where no one wants to visit your castle, and in business you need visitors. For the last six years, AmeriGas has paid out over 100% of its earnings in dividends. Over the past 12 months, it paid out $3.76 on $1.23 in earnings per share. Historically, it is known for paying out most of its earnings. But since 2011, AmeriGas has piled on over $1.3 billion in long-term debt, seemingly just to keep shareholders happy.
Guess Inc. (GES, Financial)
Price: $11.41
Yield: 7.89%
Retail and fashion have big problems, namely the barrier to entry has been erased. Anyone with a smartphone, good looks and an idea can get their friend to take photos and post them to Instagram. People are caring less and less about shopping in stores and more about return policies if they do not like what they buy. Do not get me wrong, Guess is one of the strongest brands and has done a good job of adjusting to market conditions. Yet, it has also suffered financially, going from $2.68 billion in sales in 2012 to $2.2 billion in the last 12 months. In addition, the company’s earnings have been crushed and the dividend payout, which was 20% to 30% of earnings from 2007 to 2013, has rocketed past 100% as Guess tries to keep shareholders appeased. I want to like this stock at this capitalization, but retail and big retailers still have a lot of pain in store for them.
Kohl’s Corp. (KSS, Financial)
Price: $36.30
Yield: 6.06%
Anyone who thinks a retailer could possibly have a durable competitive advantage is delusional or in denial. Kohl’s is no exception. It has what analysts like to call “overstored,” building out 1,150 plus stores at the end of 2016. In contrast, Macy’s (M, Financial) had 666. Kohl’s has also a total debt load (excluding cash) north of $4 billion. It earned $605 million in the last 12 months, and I expect it to continue declining on the top and bottom line. EPS in 2012 was $4.30, by 2020 it could be in the $2 range, putting the dividend payment on the chopping block. The biggest adjustment all brick-and-mortar retailers need to make is detaching from in-store needs. Why buy online and pick up in store, when they should be delivering the product to the customer that same day. With so many discount offers, what differentiates them from any other retailer you could go to? Nothing.
Seagate Technology PLCÂ (STX, Financial)
Price: $42.01
Yield: 6%
Instead of putting money into innovation, especially in virtual reality, augmented reality and internet of things, Seagate is paying that money out to shareholders. The company only derives 35% of revenue from enterprise. In my opinion, technology companies should not pay dividends. Rather, management should use the earrings to build new innovation that brings in more sales and profit. The hope and dream of tech investors is that the cash out brings a truckload of cash in. With Seagate, that is not the case. Seagate may be a leading maker of hard disk drives, but hard drives are decreasing in price. The company should be trying to figure out how to help people use all the data being generated and stored. Instead, sales are off $4 billion from the 2012 peak, profit margins have shrunk and the $2.52 dividend is over 100% of EPS for the second year in a row. I have a two-terabyte Seagate external hard drive I never use. That is the story in a nutshell.
Disclosure: I do not have a position (long/short) in any of the stocks mentioned in this article.
