It’s dangerous to buy headline yields — or even supposedly “safe” blue chips with more modest dividends — without looking at the profits funding these payouts. Companies with high payout ratios (how much in earnings, funds from operations and other measures a company pays out in the form of dividends) are a twofold risk: 1. High payout ratios can lead to a slowing in dividend growth, which means your payout is increasingly likely to fall behind inflation. 2. High payout ratios are often an early warning sign of dividend cuts, or even outright suspensions. Let’s call out four stocks with skyrocketing payout ratios. All four are “stay aways” – and the names may surprise you...
The Coca-Cola Co (NYSE:KO) has been building out its non-cola brands for years – including the likes of Powerade sports drinks, Simply Orange juices and Dasani water – for precisely the possibility that is reality today. Centurylink Inc (NYSE:CTL) is in the same ilk as Frontier Communications Corp (NASDAQ:FTR), which cut its dividend a few months ago, and the aforementioned Windstream, which just killed its payout outright. The nice thing about energy pipeline master limited partnership (MLP) Plains All American Pipeline, L.P. (NYSE:PAA) is that there’s not much guesswork in whether the company is going to cut its distribution. Fashion retailer Guess?, Inc. (NYSE:GES) should have cut its dividend long ago.
Source: Income Investor
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- Warren Buffett's Two Investing Rules For Dividend Investors
- Dividend Stocks vs. Dividend ETFs
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