Lets talk about five big payouts that are so flimsy, theyre just asking for the ultimate sign of dividend disrespect:
Paying money to short them.
Its one thing to turn down a decent yield in todays 2% world. Its another to be willing to pay the dividend in order to bet against the stock!
Yet here are five firms with archaic business models (some are so-2015) that their cash flow streams will soon dry up. And when the cash evaporates, so will the dividend.
Which is why I may short some or all of these shares in the weeks ahead after this piece publishes. I personally have no problem paying these dividend taxes for the right to bet against these stocks because I dont expect the levies to remain high for long!
Shorts are often scared off by dividends. This can make the post-cut plunge all the more painful (with no shorts there to cover, or buy back, their initial positions).
I probably dont need to remind you what happened recently to Mattel (MAT) or Teva (TEVA). (The former was featured in my Dirty Dozen report warning about dividends most likely to be cut.) Both were favorites of first-level income investors and the Internet pundits they followed.
Unfortunately these headline followers all learned the hard lesson that stock prices eventually follow their dividends in both directions:
Two Recent Dividend Disasters
The damage has been done here. But plenty of dividends that would have been considered safe in yesteryear are now on the clock for cuts of their own.
Here are five payouts that are being eaten alive by Amazon (AMZN) and the broader Internet. Id sell them now (or even short them outright).
5 Dicey Dividends Id Sell (or Short) Today
Buckle (BKE) is a shareholder-friendly retailer that got caught in no mans land when retail ended. Management pays a regular quarterly dividend plus big special dividends every year.
In hindsight, management should have been saving its money and reinvesting in mobile shopping and other ways to connect directly with its customers. At this point, its probably too late. Revenue is in a downward spiral, with the share price following:
Buckles Shares Buckle
The quarterly dividend should have been cut two years ago. And those big special dividends (shown by the orange spikes above) should have been invested somewhere smartly. But it wasnt, and its now only a matter of time until Buckles dividend officially buckles with the firm paying out 83% of its declining profits to shareholders.
Up the chain, Macys (M) is finished as well. The department store has been replaced by web browsers and mobile apps, and this firm didnt connect directly with its end customers in time either.
Macys has finally halted its dividend increases next up will be the drop. It should have happened already, but management has kicked the can down the road.
Macys Dividend Mirage
My only hesitation with shorting shares right now is that short interest is steadily climbing, so it might be best to look for a dead cat bounce. Regardless, this 7% yield is not worth the risk from the long side.
DineEquity (DIN), owner of Applebees and IHOP, makes a dubious return visit here. I warned you about these shares just over two months ago, and theyre already 14% lower:
Down 14% Since Our July Warning
DineEquity had been a generous dividend payer (and grower to boot). Problem is, the restaurant business today is a zero sum game. For every Applebees, there are countless food delivery boxes being delivered to the same local neighborhood.
The next move will be a dividend cut. Its 9.7% yield, a product of a tanking stock price, is not sustainable. The company is paying out 84% of its declining profits to shareholders, and it badly needs the money to attempt to figure something out.
Cracker Barrel (CBRL) is better run, but in the same sinking boat. Its stock, fundamentals and dividend have held on until this year. But its now paying nearly all (95%) of its profits as payouts, which is way above its historical norms.
Skyrocketing payout ratios are often ominous. In Crackers case, it doesnt look to be a passing thing, either:
A Price Powered by Payout Ratio (Not Good)
Finally fertilizer maker Mosaic (MOS) remains behind the dividend cut curve. Low agricultural prices have crushed its profit margins (and free cash flow). The firm has already chopped its payout once in 2017 one more will happen soon if business doesnt turn around:
Mosaic is Due for One More Dividend Cut
I warned you about Mosaic for the first time last November (before its first cut) its down 28% since. We revisited in March, when I warned another dividend drop was on the way. That hasnt happened yet but its stock is already dropping in anticipation of the bad news.