Many investors flock to high-yield dividend stocks because they offer a simple premise. You can put your money into a stock and generate high cash flow that gets treated more favorably when it’s time to file taxes. Some high-yield stocks have higher rates than high-yield savings accounts, but high-yield doesn’t mean that a stock presents a buying opportunity.
Some stocks with high yields have substantially underperformed the stock market. While the dividend payouts may continue to arrive, investors end up with a net loss if you consider depreciation.
Corporations with high dividend yields tend to have lower revenue and net income growth. Some of these same companies have flat or declining year-over-year growth rates. In any event, you don’t want those types of corporations in your portfolio. While some high-yield stocks benefit from short-term momentum, the stock market is a weighing machine in the long run. These are some of the high-yield stocks to sell that can hurt shareholder value in the long run.
Verizon (VZ)
Verizon (NYSE:VZ) has enjoyed a surprising 22% rally over the past year, but that’s not likely to last. Shares are down by 27% over the past five years, and financial growth rates don’t suggest that the stock will generate solid gains for long-term investors. Operating revenue only increased by 0.2% YOY in the first quarter, while EPS dropped from $1.17 to $1.09.
The company’s fastest growing segment is Verizon Consumer revenue, which only increased by 0.8% YOY. Meanwhile, Verizon Business revenue dropped by 1.6% YOY. Verizon has been a value stock for many years. Investors don’t expect Verizon to report consistent double-digit revenue and net income growth. However, the rally has made Verizon stock overstretch at current levels.
Those growth rates raise concern about a 15.5 P/E ratio. The stock offers a generous 6.39% yield, but that payout doesn’t make up for Verizon’s consistent underperformance compared to the S&P 500.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) has been praised as a blue-chip stock for many years. It’s still a top holding in Warren Buffett’s portfolio which some investors use to gauge their decisions. It’s undoubtable that Coca-Cola has become a household name and will continue to make billions of dollars every quarter.
However, the corporation’s growth rates and a 26 P/E ratio suggest that this stock may be due for a correction. Shares are up by 9% year-to-date, but they have only gained 21% over the past five years, trailing the S&P 500 in both regards. The stock offers a 2.97% yield, but growth hasn’t been as impressive.
Revenue only increased by 3% YOY to reach $11.3 billion. Yes, that’s a lot of revenue, but growth rates matter more for a stock’s long-term gains. EPS also inched up by 3% YOY. These growth rates haven’t kept up with YTD stock gains. Given Coca-Cola’s low growth rates, it looks overvalued at current levels.
Walgreens (WBA)
Walgreens (NYSE:WBA) has a 9% yield, but that’s not going to last forever. There’s speculation that Walgreens may have to suspend its dividend entirely as the company endures numerous woes. The pharmacy retailer has already received the boot from the Dow Jones and will soon be removed from the Nasdaq-100. The stock’s 59% YTD drop has scared away many investors.
While a 9% yield and a 91-year history of consecutive dividend payments look tempting, investors should not consider it when taking a look at Walgreens’ current state. Walgreens only reported a 2.6% YOY increase in Q3 FY24 net sales and reduced its fiscal 2024 adjusted EPS guidance from $2.95 to $2.80.
The company is also poised to close many of its U.S. stores, especially ones in unprofitable locations. This decision reflects the challenges Walgreens faces and will result in lost market share. Roughly 25% of Walgreens stores are unprofitable. Leadership cited inflation and theft as factors that have hurt sales and profits.
On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.