Sell These 3 Overvalued Dividend Stocks Now

There are a lot of overvalued dividend stocks out there.

Time to wisely kick a few stocks out of your portfolio.

While the uninformed focus on equity markets potentially being a bubble, the most obvious bubble in the market is the risk of some higher-yielding dividend stocks.

The fixed income market is normally a place of stoic safety—the purview of those looking to avoid risk.

Is it really possible that allegedly safe Treasury securities could lose significant value?

You bet they can—and they will.

Correction: they are. As we’ve seen over the last two months, yields are falling further.

While it’s the market’s worst-kept secret, many investors will still lose big money watching their fixed-income investments evaporate. You don’t have to be one of them.

You do, however, need to see the writing on the wall and be willing to take action to protect your capital during what will likely be a long period of rising interest rates.

It’s not just bonds; other cash-flow-related securities like dividend stocks will suffer, as well.

Dividend stocks were the one safe haven during the crisis-level low-interest-rate phase now ending. The search for yield resulted in shares being bid up to unsustainable levels. Now with rates on their way up, dividend stocks are on their way down.

Get out while you can, with most dividend stocks trading at peak value.

Here are three dividend stocks to sell now:

 

McCormick & Company (NYSE: MKC)

The packaged food company is a great example of a bubble in dividend stocks. While there’s some justification for paying a high price for consistent cash flow, does it really make sense to pay 28 times 2021 estimated earnings?

Not really, especially when you consider that the company expects to grow profits in the single digits.

What happens to the valuation when yield seekers go elsewhere? Those that espouse dividend stocks fail to answer that question.

When an investment theme gets overdone, basic principles like valuation fall by the wayside; ultimately, the market proves that valuation does matter.

Sell McCormick before the market figures that out.

 

Kimberly Clark (NYSE: KMB)

From an investment perspective, there’s nothing sexy about Kimberly.

Typically, the market hands out premium valuations when there are fast-growing profits. That’s not the case with Kimberly Clark.

The company lowered 2021 sales growth to 0 to 1% with adjusted earnings down to $7.30 to $7.55.

Analysts expect the company to cut profit projections by 8% from the current year to the next. At current prices, shares trade for a very healthy 19 times 2021 estimated earnings.

The reason for the premium is the dividend. Kimberly Clark pays out more than 3% per annum. With interest rates so low, that’s an attractive return. If there is profit growth on top of that, you might have a meaningful combined return.

That argument fails when the valuation is so high. The stock continues to underperform, down 4% compared to the Consumer Staples Select Sector SPDR ETF (XLP) returned 22%.

This is the risk investors face, at current prices.

That 3% dividend might not look so attractive now. Add in the strong dollar risk it faces, and you have all the reason you need to break up with Kim.

 

AT&T (NYSE: T)

Investors have a love-hate relationship with AT&T.

When the company tried to break out of the “boring” telecom space and move into the hot media/content arena buying Direct TV and Time Warner, many investors cheered.

Except when management went to execute the plan, the business model got really muddled between cell phone carrier and media content.

And Wall Street didn’t like that. The stock price went nowhere.

Yes, the company has paid out a rich dividend of 7% annually. But that’s coming to an end.

With the focus on the 5G and telecom build-out, management wants to conserve cash. So the dividend will be cut.

How much? Management hasn’t said, but speculation on the Street is it could be cutting the dividend in half.

And since the announced spin-off of the media properties, the stock price still hasn’t gone anywhere.

Move on from AT&T. There are better dividend players that can hold their yields and appreciate in price at the same time.

I Can’t Drive 55

I Can’t Drive 55

johnh
On May 19, 2022

Let’s start walking through a deeper dive into the numbers and see where the market is going from here…

You Can Do This, We Can Help

You Can Do This, We Can Help

johnh
On May 18, 2022

Let’s start walking through a deeper dive into the numbers and see where the market is going from here…

Get To Know The Power Of Tink

Get To Know The Power Of Tink

johnh
On May 17, 2022

This one company just posted strong earnings at the end of April and has less exposure to interest-rate risk.

Mark This Date On Your Calendar!

Mark This Date On Your Calendar!

johnh
On May 16, 2022

Could this one date really mean so much to the US economy? That date is June 1st, 2022. Today’s trade ideas are in the transportation sector…

Three Stocks Ready For a Breakout!

Three Stocks Ready For a Breakout!

johnh
On May 15, 2022

Taiwan Semiconductor Manufacturing Company (TSM) reported their first-quarter revenue was up 55% year-over-year and they are planning on price hikes in 2023 that will be passed along to their customers.

I Warned You This Would Happen

I Warned You This Would Happen

johnh
On May 12, 2022

This is why you read Filthy Rich, Dirt Poor. On April 27, I warned you that the S&P 500 was sending warning signs it would trade lower and told you there are three critical levels of support.

Is This Indicator Signaling a Bottom?

Is This Indicator Signaling a Bottom?

johnh
On May 11, 2022

Is this one indicator showing us that there is some relief in sight?

See the one indicator that may predict a market turnaround.

What’s For Dinner?

What’s For Dinner?

johnh
On May 10, 2022

If restaurants weren’t hit hard enough during the pandemic, some of them are struggling to find their footing as food prices soar.

These Wings Flew Too Close To the Sun

These Wings Flew Too Close To the Sun

johnh
On May 9, 2022

If restaurants weren’t hit hard enough during the pandemic, some of them are struggling to find their footing as food prices soar.

How The Great Divide Will Soon Impact Your Shopping Experience

How The Great Divide Will Soon Impact Your Shopping Experience

johnh
On May 9, 2022

The pandemic has changed how some people think about life, work, and what they want out of both.

PREV NEXT

Contact

267 Kentlands Blvd #225
Gaithersburg, MD 20878

P. (866) 257-3008
(Monday-Friday 9:00 AM-5:00 PM EST)

E. [email protected]

Products

About

Publisher of actionable and proven strategies and tactics to help investors build wealth and reach seven-figure portfolios.

Receive the latest news

Subscribe To Our Daily Newsletter

Get notified about new articles, special events, training, and much more

Like What You See?

Leave your info below to get more options and trading ideas to your inbox

Yes, send me news to my inbox.