You can always count on me to appreciate a good dividend stock. Whether it’s the reliable payout, the earnings performance or revenue growth, great dividend stocks are something to cherish. But be careful not to let some scary, dangerous dividend stocks invade your portfolio.
As rewarding as a great dividend stock can be, dangerous dividend stocks can be nightmare worthy of a Friday the 13th film. There’s nothing that can tank your portfolio faster than a dividend stock lurking in the shadows, ready to inflict some real damage.
The worst dividend stocks have their payouts jeopardized, cut, or simply vanish. What’s the point of having a dividend stock if you can’t count on the monthly or quarterly payout?
Dangerous dividend stocks can also be weak performers, with poor analyst ratings, a lack of momentum, and poor earnings performance.
We’re using the Portfolio Grader and the Dividend Grader to identify the worst dividend stocks on the market. You’ll want to make a change if you’re holding any of these names.
Ford (F)
Ford (NYSE:F) is one of the nation’s most recognizable legacy automakers. As the maker of memorable cars like the Mustang, Thunderbird, Explorer and F-150, there’s a line of Ford cars, SUVs or pickups to suit pretty much any taste.
So why is Ford stock dangerous?
Sales are a problem, particularly for Ford’s electric vehicle fleet. In January, sales dropped 51% year over year, which prompted Ford to announce steep price cuts to generate interest. For instance, its electric Mustang Mach-E saw prices drop as much as $8,100.
And it worked, at least for now. Sales jumped 81% in February. But I’m worried about the profit margin that Ford is sacrificing to generate sales.
Ford is also coming off a public labor dispute with its United Auto Workers union workforce. And although the strike is over, Ford’s labor costs will increase.
Ford pays a dividend yield of nearly 5%, but that’s inflated by a supplemental special dividend of 18 cents per share on top of the normal dividend of 15 cents. There’s no guarantee that the payout ratio will hold or if those supplemental payouts will continue.
F stock is up by less than 1% in the last 12 months. It gets a “C” rating in the Portfolio Grader and a “D” rating in the Dividend Grader.
Realty Income (O)
Once upon a time, I was a pretty big fan of real estate investment trusts.
I saw them as reliable options for dividend payouts because the special structure of a REIT means that it regularly pays out 90% of its income.
But I can’t feel that way about Realty Income (NYSE:O), a REIT that owns more than 13,000 properties across 90 industries and in every U.S. state.
Interest rates are putting a huge dent in the profits of REITs like Realty Income. It costs a lot of money to float a mortgage, and Reality Income has thousands of properties to maintain. Borrowing money is much more expensive than it was just two years ago.
Realty Income saw revenue of $1.07 billion in the fourth quarter, up from $888.7 million a year ago. But income dropped from $227.3 million to $218.4 million.
O stock pays a dividend yield of nearly 6%, but that’s sharply inflated because the stock price is under so much pressure. Realty Income is down 15% in the last 12 months.
The stock gets an “F” rating in the Portfolio Grader and a “D” rating in the Dividend Grader.
Pfizer (PFE)
I greatly respect everything Pfizer (NYSE:PFE) accomplished in the 2020s.
Four years ago, we were in the beginning weeks of the Covid-19 pandemic, and Pfizer was one of the first companies to create a coronavirus vaccine that undoubtedly saved countless lives and helped the world emerge from lockdowns.
But as grateful as anyone can be to Pfizer, it’s still a dangerous dividend stock . People aren’t getting immunized against Covid-19 the way they were a year ago and that’s hurting Pfizer’s bottom line.
Revenue in the fourth quarter was down 41% from a year ago at $14.2 billion. Income dropped from $1.14 billion in the fourth quarter of 2022 to $593 million in the fourth quarter of 2023.
That’s why Pfizer stock is down 29% in the last 12 months. Despite offering a dividend yield of 5.9%, PFE gets an “F” rating in the Portfolio Grader and a “D” rating in the Dividend Grader.
Walt Disney Co. (DIS)
Walt Disney Co. (NYSE:DIS) is one of those dangerous dividend stocks everyone knows about, but you may not realize how dangerous it really is. Disney has been a problem for a few months now, and I’m not holding my breath that it’s going to change this spring.
Disney has struggled ever since CEO Bob Iger retired in December 2021. His successor, Bob Chapek, had been in charge of running Disney’s famed parks but was inexperienced in running other assets like ABC, ESPN, or Disney’s movie studio. The Covid-19 pandemic also put tremendous pressure on Disney.
Iger returned to the job in November 2022 and will remain until 2026, but Disney’s problems linger. The company is batting Florida Gov. Ron DeSantis seemingly every day and faces greater competition in the streaming space.
Disney’s Pixar movies aren’t making what they used to make, and the Marvel franchise seems to have lost a step.
Earnings for the first quarter of fiscal 2024 were flat at $23.5 billion. Disney also paid its first dividend in four years in December, a payout of 30 cents per share. Sill, I can’t call this a safe dividend stock until the dividend returns consistently.
DIS stock gets a “C” rating in the Portfolio Grader and an “F” rating in the Dividend Grader.
Medical Properties Trust (MPW)
Medical Properties Trust (NYSE:MPW) is another REIT. It invests primarily in health care facilities with triple net leases, or NNN leases, which require the tenant to pay all costs related to the asset, including taxes, building insurance, and maintenance.
However, the company is facing a significant headwind these days because one of its major tenants isn’t paying the rent. Steward Health Care System only made partial rent payments in 2023 because of liquidity issues, and by the end of the year, it owed roughly $50 million.
Medical Properties Trust announced in January that it would fund a new $60 bridge loan secured by Steward assets and new second liens on the company’s managed care business.
It also plans to write off roughly $225 million in receivables because it has no assurances that Steward will be able to repay its obligation or cover future rent payments.
That write-off was a major factor in Q4 earnings, where revenue of $78.4 million was down from $231.8 million a year ago.
All this is a mess that will make MPW a dangerous dividend stock. The company recorded a loss of $663.9 million, compared to a loss of $140.4 million a year ago. Its dividend dropped from 29 cents per share to 15 cents per share.
MPW stock is down 50% in the last year. It gets “F” ratings in the Portfolio Grader and the Dividend Grader.
Icahn Enterprises (IEP)
Icahn Enterprises (NASDAQ:IEP) is an investment company operated by activist investor Carl Icahn.
He is perhaps best known for his takeover of Trans World Airlines in 1988. The airline went bankrupt in 1995, and its assets were eventually acquired in 2001 by the parent company of American Airlines (NASDAQ:AAL).
Now Icahn has his sights set on JetBlue Airways (NASDAQ:JBLU). He acquired a 10% stake in the company and secured two seats on the board of directors.
The airline hasn’t posted a profit since the Covid-19 pandemic began, and a federal judge blocked its planned merger with Spirit Airlines (NYSE:SAVE).
So, a lot is going on. On top of all that, IEP stock lost roughly half its value last year after a scathing report by Hindenburg Research suggested that Icahn Enterprises was “substantially overvalued” and compared its dividend to a Ponzi scheme.
Not surprisingly, revenue in the fourth quarter was down significantly, dropping to $2.64 billion from $3.28 billion. The company posted a net loss of $139 million, or 33 cents per share.
IEP stock continues to pay a dividend of $1 per share each quarter, but I don’t know how long that can last. It gets a “D” rating in the Portfolio Grader and an “F” rating in the Dividend Grader.
3M Company (MMM)
3M Company (NYSE:MMM) has a lucrative health care unit that brings in 25% of 3M’s annual revenue, roughly $8.2 billion last year.
But don’t get attached. That health care unit is going away. 3M is spinning it off on April 1 into a stand-alone business called Solventum.
It will be listed on the New York Stock Exchange with the ticker SOLV. 3M will retain 19.9% of the stock, so it will reap some benefits of Solventum’s success. Even so, I’m not happy if I’m a shareholder to see that unit go away.
Revenue for 3M stock was $8 billion in the fourth quarter of 2023. That’s now nearly a full percentage point from a year ago.
It will be interesting to see if MMM can maintain its dividend yield of nearly 5.9% after the spinoff. MMM stock is roughly flat for the last year, but gets “D” ratings in both the Portfolio Grader and the Dividend Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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