As the markets soar higher following the Federal Reserve’s latest decision on interest rates, now may be a great time to jettison any dividend stocks to sell from your portfolio. While stocks overall could continue to perform strongly, company-specific factors can result in poor or even negative returns with many high-yield but low-quality dividend plays.
These names fall into two categories: stocks with high dividend cut risks and stocks that make for poor investment opportunities. Many of the first have just cut their payouts, many of the second risk price declines that could outweigh their high payouts. With this, let’s look at some of the worst dividend stocks out there, and why each one should be nowhere near your portfolio.
Big 5 Sporting Goods (BGFV)
Over the past two years, Big 5 Sporting Goods (NASDAQ:BGFV) has experienced a sharp contraction in revenue and profitability. This, in turn, has led to not only big declines for the specialty retailer’s shares, but now, a big reduction in its dividend payouts as well.
BGFV stock was regularly paying out a 25 cent per share quarterly dividend until Oct. 31. That’s when the company announced a slashing of its payout by 50%. Big 5 still sports a big forward annual yield (7.99%), yet whether it can sustain even this reduced level of payout remains to be seen.
As CEO Steven Miller noted in Big 5’s latest earnings release, soft consumer demand is “likely to persist” during the current fiscal quarter. Unless demand really bounces back next year, the retailer may have to reduce or even suspend payouts to conserve cash.
B&G Foods (BGS)
At first glance, B&G Foods (NYSE:BGS) might seem like a fantastic low-priced, high-yield stock. The shares of this branded foods company are just 11.2 times forward earnings. The stock’s current forward annual dividend yield comes in at 6.91%.
Yet while it may seem like good value and good yield, BGS stock in actuality should be considered one of the top dividend stocks to sell.
As Louis Navellier and the InvestorPlace Research Staff pointed out last month, B&G shares have performed poorly in recent years, and since 2022 has slashed its quarterly dividend from 47.5 cents to just 19 cents per share.
Although the company is strengthening its balance sheet, through divestitures of some of its product lines (Green Giant canned vegetables being a recent example), if B&G keeps reporting declining revenue and earnings from its remaining operations, outweighing any gains from the dividend.
FAT Brands (FAT)
This isn’t the first time I’ve called out FAT Brands (NASDAQ:FAT) for being one of the worst dividend stocks. In June, I argued against investing in this restaurant franchising company due to debt-financed dividends, management scandals, and other red flags.
Since laying out the bear case for FAT stock, it has fallen from around $7.50 per share to just under $6 per share. This 20% price decline alone more than counters the stock’s current forward dividend yield of 9.44%.
With earnings forecasts calling for net losses to continue through 2024, FAT may soon reach a point where it can’t even raise cash via debt issuance to maintain its big fat (but ultimately unsustainable) rate of payout. If this occurs, and a cut/suspension happens? This stock could really take a tumble.
With a forward annual yield of 5.07%, some investors may find Guess? (NYSE:GES) appealing as a dividend stock. Another appealing factor with GES is that shares in this apparel and accessories company also currently trade at a low valuation of just 8.7 times forward earnings.
However, GES stock is more value-trap than deep value play, and is most definitely one of the dividend stocks to sell. Even with the market anticipating a recovery in consumer demand, analyst forecasts call for only a miniscule jump in the company’s earnings next fiscal year (ending January 2025).
As a Seeking Alpha commentator recently pointed out, it’s not just a weak global economy that is affecting fiscal performance. Per the commentator, the waning appeal of Guess? as a fashion brand in North America is an issue that may not go away, even once consumer spending bounces back.
Icahn Enterprises (IEP)
Icahn Enterprises (NASDAQ:IEP) is a master-limited partnership that serves as billionaire activist investor Carl Icahn’s publicly traded investment vehicle. As discussed last month, IEP is one of the highest-yielding stocks out there. Right now, shares sport a yield of 25.5%.
However, there’s a reason IEP stock has such a high-yield, and it’s why it is one of the top dividend stocks to avoid. A “short report” issued by Hindenburg Research back in May has not tarnished the legendary investor’s reputation, but it has made the market very leery about buying IEP to collect its massive yield.
After cutting its quarterly distributions from $2 to $1 per share, Icahn may decide that there’s little to lose by reducing it further. IEP may be worth a second look if its share price falls below tangible book value ($8.36 per share), but until then, stay away.
Kronos Worldwide (KRO)
Shares in chemicals company Kronos Worldwide (NYSE:KRO) have a forward annual dividend yield of 8%. KRO has also rallied strongly since October, rising by more than 40%. So, with these positive factors on its side, why skip out on Kronos?
As my InvestorPlace colleague Marc Guberti pointed out in November, dividend cut risk runs high with KRO stock. With the company continuing to report losses, Kronos’ big payouts seem sustainable. Yes, anticipated stronger results, including a possible a swing to profitability in 2024, may be the reason KRO shares are surging.
If results do not improve, the stock could suffer from disappointing results and maybe a dividend reduction. While perhaps worth the risk at $6.75 per share, at $9.50 per share the risk/return proposition is no longer in your favor with KRO.
This is the second time in recent weeks that I’ve called Medifast (NYSE:MED) one of the top dividend stocks to sell. On Nov. 27, I deemed Medifast one of the doomed dividend stocks, largely due to this weight loss products company’s deteriorating fiscal performance.
As stated previously, the rise of prescription weight-loss treatments is causing “disruption” of Medifast’s business, given the degree in which its revenue/earnings have declined lately. The popularity of weight-loss drugs may be temporary, but with employers covering treatment costs, demand could increase.
With this, operating performance may keep deteriorating. Medifast’s 9.39% dividend yield could also be reduced or even suspended. Until new developments emerge suggesting that the company adapt to changing weight loss habits, consider it best to avoid MED stock.
On the date of publication, Thomas Niel did not hold (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.