Dividends are an important part of many portfolios, but along with recognizing the top dividend stocks, you also need to be able to recognize which dividend stocks to sell at a given time.
Today we highlight a list of dangerous dividend stocks. I would consider this a call to sell them now if you have them, or avoid them until more we learn more.
This write up is not a criticism of these companies necessarily. In fact I am a fan of a few of them, but it’s a timing thing thanks to the Federal Reserve’s actions to bail the U.S. out of the pandemic lockdown. Now they are trying to unwind those actions, and we are likely to see new symptoms soon.
In other words, we should stay humble with our thesis and nimble with our investments.
Finding fixed income during the never-ending quantitative easing cycle was difficult. As the Fed has raised its rate, the yields have crept up, but not enough to stop investors from chasing dangerous dividend stocks.
Investors should be leery of stocks that rewards you too much in dividends just to lure you in. If it’s a great opportunity, they could get away with offering us less. Also, piling into a new stock for its dividend just because everyone else is opens investors to bad decisions. Chasing too late means that I would be tagging winners out and taking over a losing position. Then the stock falls by far more than the dividend gives me.
In almost all of these dangerous dividend stocks to sell, I would buy them lower. They are good companies for the most part — just not at these stock levels.
|SPG||Simon Property Group||$95.56|
|WMB||The Williams Companies||$31.14|
But at these altitudes — or worse, from their 2022 highs — they are probably dividend stocks to sell. Their fundamentals are strong, so I have no issues there. But they look very expensive here.
The higher a stock’s price goes, the lower its dividend yield becomes in percentage terms. So for XOM or CVX, what was a 9% yield is now barely over 4%. In addition, their stock prices are still so high that they could quickly lose 10% or more. This would indeed eat up whatever benefit the investors were expecting from the dividend.
If you want these for the long term, it may be best to sell here and buy in again once they come back down to Earth.
I haven’t been a fan of AT&T (NYSE:T) for a long while, though admittedly that has less to do with the stock’s performance than with personal experience. Still, my experience makes me doubt management has enough focus for me to trust them long term.
Intermittently, I’ve discussed upside opportunities in T stock. But they were very specific, from point A to point B on the chart. And their most recent spinoff of their media business has added so much doubt in my mind that I would just avoid it. Until we get a better understanding of the business that’s left, I cannot be certain that even the reduced dividend is safe.
My apprehension has back up from the charts. T stock hasn’t been at these levels since 1996. Beside, the reward from the dividend may be too large. The draw from it would turn into a reason to sell if investors doubt it.
Although there are no grumblings now, they could surface. They’ve already cut it this year, because of the spinoff, but we can’t be certain they won’t do it again if the remaining company doesn’t perform as expected.
Simon Property Group (SPG)
Simon Property Group (NYSE:SPG) presents a dilemma for me today. In theory, it belongs on the list of dividend stocks to sell. But technically the charts are starting to look a bit interesting.
The 2022 descent from the 2021 highs has been incredibly punishing. But I somewhat expected this, because I thought the 300% pandemic rally was overdone. This slide puts it back into balance from a chart perspective.
From a trading perspective, there could be a rally brewing but nothing that has already triggered. But from an investment angle, there is a chance it could trap dividend chasers. The 7% it offers now is juicy, but the real-estate sector is in danger from the Fed. The central bank is out to destroy demand by raising rates. That’s not going to leave many opportunities in that sector.
I respect the company’s efforts out of the pandemic, as I bet that situation was extremely unique. I doubt that we will face such trepidation anytime soon. So from that perspective, management deserves kudos. My apprehension may be off target here, but I’d rather be safe than sorry.
Vornado Realty (VNO)
If I were nervous about the prospects of SPG, then I certainly fret Vornado Realty (NYSE:VNO). Wall Street is pretty good at pricing uncertainty, and the VNO chart is flashing caution signs. The stock is an low and can’t find footing, not even at the pandemic lows.
This is concerning behavior.
The financial statements don’t inspire confidence either. The revenue lines are still 50% below earlier levels.
Like with the SPG case, I am sympathetic because of the special test Vornado endured. Nevertheless, it’s like investors are being cautious first and nice second. With so many other sources of fixed income now, there is no need to venture into such an iffy chart.
Technically, when the bulls are struggling to hold an all-time low, they will likely lose the battle soon. I am surprised that a stock this iffy would have seven out of 12 analyst recommend it as a buy. Their 7.4% yield certainly earns them a spot on my list of dangerous dividend stocks.
Devon Energy (DVN)
The recent mania over the upside potential of oil stocks is waning. From a technical perspective, they’ve been a short for a while especially on rallies. Devon Energy (NYSE:DVN) is not the exception, so it too made my list of dangerous dividend stocks. While there isn’t much visible threat in the financial statements, the DVN stock chart is glowing orange.
Even though it lost almost 34% of its value from the highs, there could be plenty more to come.
This is a similar scenario to CVX and XOM, where the companies are fine. My beef is with the altitude of the stock charts. New investors will likely lose more in capital than they could get back from dividend yield benefit. This is an easy fixed-income trap to avoid.
There is some support here and a bit lower, but ultimately DVN could fall below $40 per share.
Williams Cos. (WMB)
The magic numbers for Williams Cos. (NYSE:WMB) are $29 and $33 per share. The bounces this year are likely to face sellers at those levels. This translates into resistance. Conversely, if the bulls fail to hold $29 per share they could lose way more later. The support failure would lead WMB stock to $25, where lies the bigger support level.
The more important point is that if I am right, then rallies are opportunities to sell. Sell-the-rip themes are very detrimental to stocks. WMB is in danger of starting such a scenario in the next few weeks. The reward from the dividend is too small to matter in such a scenario.
The downside risk far outweighs the 5.4% yield. The financials are not alarming yet, but it’s a matter of upside potential versus downside risk.
Oneok (NYSE:OKE) stock has an incredibly pivotal level near $48 per share. It’s so important that I fear the consequences of it failing — $35 would be a likely target from such a slip. Rallies into $65 would then turn it into a selling zone. Assuming that the buyers prevail with their bounce efforts, they would then face a tiresome battle.
According to Yahoo Finance, of its 16 analysts 12 of them think it’s a hold. What concerns me is that their average price target is near its all-time high. Mathematically that makes very little sense. If the price doesn’t rally soon, the analysts would likely revise their targets lower so to avoid being wrong. This ratings system is likely causing harm to investors who rely on these “expert” opinions to profit.
When the facts are this obscure, I would rather avoid the whole situation. There are hundreds of other stocks to trade — and OKE right now looks like it might be one of the dividend stocks to sell.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.