Dividend stocks offer investors a quarterly payout, which allows for higher gains versus non-dividend paying stocks. Smart investors will have a mix of dividend stocks in their portfolio to allow for a diverse portfolio. Reinvestment plans further make it worthwhile for investors to keep investing in a company without high commission rates and fees in the process.
The issue is that not all dividend stocks are worth owning.
Dividends are not guaranteed, and rocky financials can cause a stock to slash its dividends to stay afloat. Two companies that offer high dividends but have had financial struggles as of late are:
1. Pier 1 Imports (PIR)
Pier 1 is a specialty retailer that deals primarily with home goods. The company is under pressure from larger retailers, causing same store sales to struggle. First-quarter results from the company show a 2.5% decline in same-store sales and a drop of 4.2% in revenue on the quarter.
Underperforming stores are being closed by the company, and Pier 1 has boosted their marketing efforts to stay afloat amongst heightened competition.
Despite the company’s efforts, net profit is down. The company has $115 million in cash and $200 million in long-term debt. Analysts project that the company’s earnings will dip by 11% per year over the next 5 years.
Pier 1 posted a $0.34 EPS and pays a dividend of $0.28, leaving little left for reinvesting. If sales do drop as forecasted, expect dividends to be slashed.
2. SeaWorld Entertainment (SEAS)
SeaWorld offers a dividend of $0.21, which hasn’t been raised in the last two years. The dividend comes out to 6%, but the company is at risk of lowering their dividend in the near future. The company’s yearly dividend payouts are $0.84, but analysts only expect EPS to be $0.74 this year.
The company’s earnings per share are too low to sustained their dividend payout.
Revenue has fallen for the last two years, and the company only has $41 million in cash. Slumping cash reserves are made worse with the company’s $1.5 billion debt. Unless SeaWorld can greatly turn around their operations, they’ll be forced to lower their dividend payouts in the near future.