Investment Underground searched for companies with high payout ratios that are in jeopardy of dividend cuts in 2011. Among these names are mining and real estate companies and a couple outside these sectors. If you’re an investor who counts on dividends, consider reappraising your positions in these companies. And if you’re looking to add some new names to your dividend portfolio, check out these 10 safe, high-yield telecom companies or these 7 pharma stocks. Here’s what we found:
Garmin (GRMN): No defensibility. It’s as simple as that. Garmin hasn’t been able to build strong enough barriers or a strong enough brand, and with EPS projections negative at (-9.16) through 2013 it isn’t looking sustainable for the company to continue to pay out its 4.5% dividend. For safer picks with sustainable advantages surrounding their businesses, view our opinion here.
Equity Residential (EQR): Operating with negative income in 2010, Equity Residential might be able to rebound, but it isn’t looking financially strong at the moment. This means the dividend could be slashed. They may want to conserve that cash and redirect it into value buys that could strengthen it over the longer term. Not a write-off, but for dividend-focused investors it may be time to re-evaluate. (Get our view on REITs to compare here.)
AvalonBay Communities (AVB): AvalonBay is bouncing, but with a plan to invest around $700 million in new properties, the company will be expending a large amount of resources on a risk-fraught move. The economy is not out of the woods yet, but AvalonBay has just put a pretty big bet on that we are. Also, even relative to its peers, its P/E ratio is pretty high at just over an even 100. It’s chancy out there and for an income investor betting on a continued 3% dividend is likewise chancy.
Plum Creek Timber Company (PCL): The housing slump continues to plague Plum Creek. This is reflected by the fact that 2011 EPS projections are (-13.8%) and they continue to store timber as demand has yet to materialize. Given these circumstances, it seems untenable to maintain a dividend at over 4%.
Pearson PLC (PSO): Negative 2011 EPS projections at (-11.3%) coupled with the looming threat of textbook digitalization and constrained U.S. educational budgets will imperil its position as much as its 3.2% dividend. Its PEG is quite high at 3.7, another indicator that the sustainability of such a generous dividend is unlikely.
San Juan Basin Royalty (SJT): With the stock trending lower since this past July, San Juan is heading into what promises to be a dismal 2011. A remarkable decline in EPS is projected at nearly (-80%). Given that fact alone makes it hard to believe that they will continue to pay out their 6.5% dividend. Appraise this one if you’re an income investor currently holding this name. (For some better energy names, view our list here.)
Editor's Note: Information about Southern Copper Co. (SCCO) that was originally included in this article was found to be in error and has been removed.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.