In uncertain economic climates, investors will flock to any type
of asset class that will result in the best bang for their buck.
Throughout history dividend investing has been that security
blanket for investors that still want to play the market, but to do
it in a way that will result in the best return on investment.
While dividend investing can be a great way to increase wealth,
there are potential dividend traps that can derail any investment
strategy.
2012 was a great year for dividends, with companies across the
globe boosting their payouts at a record pace. Still, investors
need to be very selective with their portfolios in 2013. Here are
five dividend stocks investors do not want to own next year.
Pitney Bowes Inc.
Pitney Bowes (
PBI
) is a maker of postage meters and scales, mail sorters, and other
office products. Since the company produces many products that deal
with physical mail distribution, it is closely tied with the future
of the United States Postal Service and mail in general. This is
not a good industry to be directly related to; the USPS is
operating at a tremendous deficit and is essentially a bankrupt
company. Companies and consumers just don't mail in the same amount
as they used to and this has resulted in a limited demand it PBI
products. Pitney Bowes is in the process of becoming an irrelevant
company if it does not innovate towards a sustainable future.
While the company has a seemingly attractive dividend yield of
13.43%, this is only due to a constantly falling stock price. The
stock is down -39.75% in 2012. The company's history of having
annual dividend increases is in jeopardy if PBI wants to have a
financially successful future. A constantly falling stock
price and a unsustainable dividend yield makes Pitney Bowes a very
risky dividend investment in 2013.
Roundy's Inc
Roundy's (
RNDY
) is a midwestern supermarket chain that became a public company on
February 7, 2012; it has since been one of the worst performing
IPOs of the year. Supermarkets across the country are performing
poorly as profits are squeezed due to higher costs, and Roundy's is
no different.
The company's stock has fallen -51.33% since its IPO and
currently has an unattractive sub-$5 stock price. The dividend
yield is extremely high at about 11%, a red flag for a sustainable
dividend payout. This high yield is even after the company cut its
original dividend almost 50%, from 23 cents per share to 12 cent
per share. The low stock price, poor financial outlook, and another
potential dividend cut makes Roundy's an unsound investment next
year.
R.R. Donnelley & Sons Company
R.R. Donnelley (
RRD
) is a commercial printing service provider that has not raised its
dividend payout since 2003, a classic sign that a dividend cut
should be coming soon. This potential cut should be expected to
happen in the near future as its current 10.91% dividend yield is
usually too high to maintain. The future for the company is also
bleak in respect to capital growth as the stock is down -34%
year-to-date. With the stock falling, the company reporting losses,
and an unsustainable dividend, investors steer clear of investing
in this company in 2013.
Cliffs Natural Resources Inc.
Cliffs Natural Resources (
CLF
) is an iron and coal miner that bucked the trend of low yields
from mining plays this year and more than doubled its dividend
payout, from 28 cents per share to 62.5 cents per share. However,
investors should be wary of this +123% increase in dividend amount
because commodity based companies are never hesitant to lower
payouts due to the cyclical nature of their business.
Since CLF stock is -60% off its 52-week high and down -50%
year-to-date, investors should expect the company to cut its
dividend in the face of a high 8% yield. This potential cut in
dividend makes Cliffs Natural Resources an uneasy play for the next
year; investors should probably stay away from this high dividend
trap.
Exelon Corporation
Exelon (
EXC
) is a utility and electric power producer. While its 7.35%
dividend yield looks good on the surface, it is probably too high
considering that most of its competitors are in the 3% to 4% yield
range.
The stock is down -34% in 2012 and is down almost -20% in
November alone. Part of the reason for recent downfall is that CEO
Christopher Crane noted in earlier in the month that the company
could reevaluate its dividend in mid-2013. This will probably
result in a cut in dividend since the company's financial reports
have been disappointing in the recent quarters. With that
information at hand, investors should be concerned regarding the
dividend investing potential that Exelon has in 2013.
The Bottom Line
Investors need to make intelligent decisions when determining
what dividend stocks are the best investment, regardless of the
year. Remember that looking for stocks with high dividend yields is
not always a safe bet. Thorough understanding of total financial
health is what makes for a sound dividend investing strategy.
Staying away from dividend traps like the ones outlined above can
make 2013 a financially prosperous year.
Be sure to visit our complete recommended list of the
Best Dividend Stocks
, as well as a detailed explanation of
our ratings system here
.