I’m on the record as being a big fan of dividend stocks. But not every dividend stock is a good one.
In general, dividends are great because they provide an easy way to grow your portfolio, especially if you reinvest your payouts into the market. Other investors use dividends as a reliable source of passive income.
Sometimes, you run into a dividend stock that’s more of a drain on your portfolio than it’s worth. Or sometimes, a company will cut the dividend to make it less appealing. And there are times when a stock is merely a dividend trap. It has an attractive yield, but if you look behind the curtain, you’ll find all sorts of problems.
Today we’re using the Dividend Grader to identify some struggling dividend stocks. The Dividend Grader is a great tool that rates stocks on an “A” through “F” scale, so it’s easy to find great dividend stocks. And it’s simple to pick up those dividend stocks you need to avoid.
Intel (INTC)
Intel (NYSE:INTC) is one of the most well-known computer companies in the world, but it’s a mess of a dividend stock right now. While any company making semiconductors should have a field day, given the tremendous demand, Intel is losing market share to companies producing better and more efficient chips.
Intel also ran into manufacturing problems when it tried to ramp up the manufacturing of its chips and those of other companies.
Earnings in the first quarter resulted in the largest loss in Intel’s history, with revenue falling 36% to $11.7 billion and earnings per share falling by 133% from a year ago.
Intel also cut its dividend this year by 66%, from an annual payout of $1.46 per share to just 50 cents per share. While keeping its money may help Intel shore up its finances, it’s a huge red flag for investors. INTC stock has a “D” rating in the Dividend Grader.
Verizon (VZ)
Communications giant Verizon (NYSE:VZ) has a great dividend yield of 7.1%. And the company made it a point to protect its dividend, raising it faithfully for the last 18 years.
But this is one of those cases where there’s some serious trouble for VZ stock, making that dividend much less appealing.
Verizon spent billions to build its 5G network, and that work continues. But the 5G/telecommunications space is competitive, and Verizon hasn’t done anything to separate itself from the pack.
The dividend also makes it challenging for Verizon to pay down debt and improve its financial footing. Its debt currently stands at roughly $186.2 billion. That’s more than Verizon’s total market cap.
Verizon could find itself in an uncomfortable position once its debt matures, and we’re still operating in a high interest rate environment. VZ stock has an “F” rating in the Dividend Grader.
AT&T (T)
One of Verizon’s competitors is AT&T (NYSE:T). But unfortunately for investors, this dividend stock isn’t faring much better than Verizon, and it’s a stock to avoid right now.
Postpaid phone subscriber growth slowed dramatically in the first quarter, coming in at 300,000 versus growth of 424,000 just a year ago. The company’s also saw a significant drop in free cash flow. It went from $4 billion in the first quarter of 2021 to $2.8 billion last year and now just $1 billion in Q1 of 2023.
A robust free cash flow is essential to paying the dividend, and T stock currently has a strong one of more than 7% yield.
Don’t forget AT&T cut the dividend in 2021 by half after spinning off its cable TV and streaming and film segments. If free cash flow doesn’t improve, what’s to keep AT&T executives from doing it again?
T stock has a “D” rating in the Dividend Grader.
Nu Skin Enterprises (NUS)
Nu Skin Enterprises (NYSE:NUS) is a Utah-based beauty and wellness company operating in nearly 50 markets worldwide. The company’s portfolio includes skin care, cosmetics, wellness supplements and anti-aging products.
First-quarter earnings showed a dramatic dip in year-over-year performance. Revenue of $481.5 million was down about 20%, and the company’s customer base fell 18% to about 1.1 million.
Adjusted operating income fell from $52.1 million a year ago to $28.9 million in the first quarter of 2023.
Nu Skin pays a quarterly dividend of 39 cents per share, which typically increases the dividend by a half-cent per year. The dividend yield is currently 4.7%, but that’s somewhat inflated by the stock’s wretched performance this year – down 22%.
NUS stock has a “D” rating in the Dividend Grader.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) supplies wireless technology software and services, including smartphone semiconductor chips. Qualcomm bulls hope that artificial intelligence advances will help push QCOM stock higher.
It’s a reasonable assumption, but the numbers don’t hold up. Qualcomm’s second-quarter revenue fell 17% from a year ago, and its guidance for the third quarter was below analysts’ expectations. Rather than gaining AI momentum, Qualcomm seems to be stuck at the starting gate.
Qualcomm stock has been down 12% since early February. Its dividend of 8 cents per share is a modest dividend yield of 2.8%, but that’s not enough to excite me about QCOM stock.
Check back later this year. For now, QCOM has a “D” rating in the Dividend Grader.
Domino’s Pizza (DPZ)
Domino’s Pizza (NYSE:DPZ) is the largest pizza company in the world, with more than 20,000 stores in 90 international markets.
The company leans hard into technology 80% of its sales in the U.S. come from digital platforms, such as the company’s website, mobile app, or its partnerships with leading social media and entertainment platforms.
Its latest innovation is pinpoint delivery – rather than giving an address, customers can drop a digital pin to meet up with a delivery driver without using an address. The feature makes it easier for people at a beach or in a park to have their food delivered.
So what’s the problem? Growth has stagnated.
Revenue of $1.02 billion in the first quarter was up only 1.3% from a year ago and missed analysts’ expectations of $1.04 billion. The stock is down 7% this year.
DPZ stock offers a dividend yield of 1.5%, but that’s not enough to interest me when the stock drops and revenue growth is virtually nonexistent. Domino’s stock has a “D” rating in the Dividend Grader.
Target (TGT)
Target (NYSE:TGT) is a massively popular retailer, with stores in every U.S. state. The company has more than 1,950 locations.
But it’s been a tough year for the Minnesota-based retailer. TGT stock has been down 25% since early February. Revenue in the first quarter was up less than 1% from a year ago, and earnings per share of $2.05 dropped by more than 6%.
In addition, Target expects inventory shrink to increase by $500 million over last year. Inventory shrink is primarily the result of shoplifting and employee theft, although administrative errors and vendor fraud can also factor in.
Target also got a lot of unwanted attention this month when it pulled Pride Month merchandise off its shelves due to protests against products that promoted and supported the LGBTQI+ community. Overall, it’s a rough start to summer for TGT shareholders.
TGT pays a dividend yield of 3.3%. It currently has a “D” rating in 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.