Looking for long-term dividend income you can rely on? If so, it is important to consider any trends that could negatively impact payouts. With this in mind we created a list of dividend stocks that investors may want to think twice about.
To create the list below we began with a universe of dividend stocks paying yields between 1%-5%. We conservatively cap yields at 5% for sustainability.
We then moved to looking at growth in quarterly revenue slower than growth in quarterly inventory year-over-year. We also looked for companies with quarterly inventory increasing as a percent of current assets.
When revenue is growing slower than inventory, it may indicate that the company is having trouble selling its inventory.
Finally, we looked through the 13F's of companies on our list for those with bearish sentiment from institutional investors, with significant net institutional sales over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to underperform.
Do you think that money managers think that negative inventory trends might put pressure on the dividend payout?
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
A Closer Look
We looked at American Greetings Corp. (NYSE:AM-OLD) in more detail. The stock is trading around $16.51 versus its 52-week high of $17.49, up 15% in the past 1 year. The stock trades with a P/E multiple of 21 times, and pays a dividend of 3.6%. The 5-year dividend growth is at 8.5%.
As of November 23rd, 2012, the company has cash & cash equivalents of $63 million, and long-term debt of $356 million. The long-term debt comprises of $225 million in 7.375% senior notes due 2012, and $131 million in borrowings under the revolving credit facility due 2015.
The most significant discussion around American Greetings is the possibility that the company might go private. Is it time to stay cautious of this name? We found that money managers are bearish on the company.
Do you think troubling inventory trends could overturn the profitability? Use the list below as a starting point for your detailed analysis:
1. American Greetings Corp.: Engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide.
- Market cap at $521.74M, most recent closing price at $16.49.
- Net institutional sales in the current quarter at -1.5M shares, which represents about 5.39% of the company's float of 27.82M shares. The 2 top holders of the stock are Dimensional Fund Advisors, and Marathon Asset Management.
- Revenue grew by 8.99% during the most recent quarter ($506.81M vs. $465.01M y/y). Inventory grew by 23.28% during the same time period ($264.33M vs. $214.41M y/y). Inventory, as a percentage of current assets, increased from 29.93% to 34.71% during the most recent quarter (comparing 3 months ending 2012-11-23 to 3 months ending 2011-11-25).
- Dividend yield at 3.6%.
2. Allegheny Technologies Inc. (NYSE:ATI): Produces and sells specialty metals worldwide.
- Market cap at $3.38B, most recent closing price at $31.50.
- Net institutional sales in the current quarter at -78.6M shares, which represents about 74.4% of the company's float of 105.65M shares. The 2 top holders of the stock are the Vanguard Group, and State Street Capital.
- Revenue grew by -12.01% during the most recent quarter ($1,101.1M vs. $1,251.4M y/y). Inventory grew by 11.% during the same time period ($1,536.6M vs. $1,384.3M y/y). Inventory, as a percentage of current assets, increased from 53.87% to 61.2% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
- Dividend yield at 2.3%.
3. bebe stores, inc. (NASDAQ:BEBE): Engages in the design, development, and production of women's apparel and accessories.
- Market cap at $333.06M, most recent closing price at $4.02.
- Net institutional sales in the current quarter at -5.3M shares, which represents about 14.9% of the company's float of 35.58M shares. The 2 top holders of the stock are Invesco Ltd., and Dimensional Fund Advisors.
- Revenue grew by -10.83% during the most recent quarter ($135.53M vs. $151.99M y/y). Inventory grew by 21.65% during the same time period ($37.42M vs. $30.76M y/y). Inventory, as a percentage of current assets, increased from 11.85% to 16.35% during the most recent quarter (comparing 3 months ending 2012-12-29 to 3 months ending 2011-12-31).
- Dividend yield at 2.5%.
*Accounting data sourced from Google Finance, all other data sourced from Finviz. Institutional data sourced from Fidelity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.