High-yield dividend stocks can be complex to navigate. While dividend yields reduce investors’ risk when the price dips, they also require investors to take on potentially more risk. In general, the higher the dividend yield, the riskier the stock is.
Besides the dividend yields, other metrics can be used to measure risk. One of these is the payout ratio, which measures what percentage of the profit a company pays to its shareholders. Each dividend stock included in this list has shown some unsavory metrics that investors should watch out for.
It could sink dangerously fast if you do not carefully evaluate your dividend stock portfolio. Sometimes, you can experience a sudden cut in payouts, often leading to a dip in the share price. As such, you lose out on dividends, and your portfolio’s overall size can be drastically reduced.
These three dividend stocks show all the wrong signals, and you should consider abandoning them by 2025.
Ford (F)
Ford (NYSE:F) is a legacy car manufacturer behind some of the best-known cars in the world, including the F-150, the Mustang, the Thunderbird, and a line of cars, SUVs and pickups designed for all consumers.
One of the biggest issues facing Ford is a decline in sales. In its first-quarter results for fiscal 2024, Ford reported that the Ford Model E revenue had fallen 84% year over year. Ford made huge price cuts to remedy the drop in sales for its electric cars.
The price cuts have helped increase sales volumes for its electric and hybrid cars, which saw a 61% and 56% increase year over year in the second quarter. However, the increase in sales means that Ford has to sacrifice its profit margins.
Another issue is the United Auto Workers strike. While Ford settled with the union, its labor costs will increase in the coming years.
Traditionally, Ford has had a dividend yield of nearly 5%. However, that is due to a supplemental special dividend of 18 cents on top of the regular 15 cents. There is no guarantee that those supplemental dividends will continue in light of increasing labor costs and falling revenue.
Looking at the stock performance, Ford is up only 0.36% in the past 12 months. Analysts are not excited about its future, giving it an average price forecast of $14.13, which typically translates as a 2.89% downside based on the most recent price of $13.98. The most pessimistic analysts predict a price of $10.00; this represents a 31.27% decline.
Ford is committed to transitioning into the EV space, which it views as the company’s future. However, the company is lagging behind industry leader Tesla and Rivian. While it has the benefit of name recognition, its current performance does not bode well for its future.
Pfizer (PFE)
Pfizer (NYSE:PFE) is a leading biotech and pharmaceutical company that became famous in the 2020s for its COVID-19 vaccines.
However, its accomplishments are overshadowed by falling vaccination rates. The number of COVID-19 doses has dropped significantly and could eventually end by 2025. As this trend continues, it has dramatically impacted Pfizer’s bottom line.
In its first-quarter results for fiscal 2024, Pfizer reported a 20% year-over-year decline in revenue to $14.9 billion. For the full year, Pfizer forecasts revenue of $58.5 to $61.5 billion, the same as the fiscal 2023 revenue of $58.5 billion.
PFF stock has performed dismally, losing 19.87% of its value in the past 12 months to $29.97 per share. Investors are not hopeful of its future, giving PFF stock a solid hold rating. They forecast an average price target of $33.47, a 12.66% upside. The most pessimistic analysts expect the stock to fall 9.12% to $27 per share.
Based on its own forecast, Pfizer expects no revenue growth in 2024. This trend is likely to hold in 2025, making PFF stock a risky investment. Its performance over the past 12 months also suggests that it has lost favor with investors.
Pfizer may not be the best choice if you are looking for a great dividend stock. It has entered a period of low growth, which could cause more investors to withdraw their investments as they expect a price correction in the coming months.
3M (MMM)
3M (NYSE:MMM) is a major conglomerate that manufactures goods for several industries, including worker safety equipment, industrial goods, healthcare products and consumer products.
Its most lucrative segment is the healthcare unit, which generates 25% of the revenue. However, on April 1, 2024, 3M announced it was spinning off the healthcare unit into a new company called Solventum (SOLV). But, 3M will retain a 19.9% share in Solventum, ensuring it enjoys some of the benefits of its success.
In its first quarter fiscal 2024 results, 3M reported revenue of $8 billion, a 0.03% year-over-year decline. It is worth noting that these results included the healthcare unit, which will not contribute to revenue or cash flow in future results.
As such, it might be less lucrative to dividend investors. 3M is not among the best investment choices for future dividend growth or stability.
Another issue to consider is the numerous legal issues facing the company. In March 2024, it announced it had settled a lawsuit for $6 billion. The lawsuit involved faulty earplugs, claimed to have caused hearing loss among military members.
It was also embroiled in an environmental lawsuit attributed to the presence of Per- and polyfluoroalkyl substances, synthetic chemicals used to manufacture consumer goods, in public water supplies. The lawsuit was settled for $10.3 billion, which will be paid over 13 years.
3M has other legal issues, which cannot be commented on since they are still in court. However, based on the outcome of past lawsuits, it could potentially mean more financial loss for the company.
On the date of publication, Joel Lim 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.com Publishing 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.