Dividends4Life: Deceptively Expensive Dividend Stocks to Avoid

Deceptively Expensive Dividend Stocks to Avoid

Posted by D4L | Wednesday, June 25, 2014 | | 0 comments »

Currently, the most dangerous stocks may very well be the ones that have benefited the most from the search for yield. You see, investors are attempting to make up for plummeting global interest rates by taking on more risk. Essentially, they’re reaching for a higher yield wherever they can find it. As a result, many stocks that look attractive based on dividend yield are actually dangerously expensive. To see what I mean, let’s put four stocks to the test using the enterprise value-to-EBITDA ratio. If you recall, I consider it to be one of the best valuation metrics around because it adjusts for cash and penalizes highly-levered companies:

Pharmaceutical giant Bristol-Myers Squibb (BMY) has experienced a 20% decline in revenue since 2011. Sales at Iron Mountain (IRM), a provider of information management services, have stagnated for the past five years. And revenue at tax preparation services provider H&R Block (HRB) peaked nearly a decade ago! Campbell Soup (CPB) is growing revenue, albeit very slowly. Yet this consumer staple company has a valuation more suitable for a high-growth tech stock. All of the companies in the list have EV/EBITDA ratios above that of the median S&P 500 constituent.

Source: Wall Street Daily

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