Avoid these dividend stocks.
In an unpredictable market, dividends can be one of the few reliable sources of investor returns. However, a dividend is only as good as the underlying stock that's paying it. General Electric Co. (ticker: GE) investors know all-too-well how quickly a huge dividend yield can be cut to just 1 cent per quarter if a company is in dire financial straits. In addition, plenty of dividend stocks reached such high yields because the stock's share price has dropped so much. Here are nine stocks with at least 4 percent dividends that Bank of America says to avoid.
Campbell Soup Co. (CPB)
Campbell Soup pays a generous 4.1 percent dividend. Unfortunately, analyst Bryan Spillane says Campbell is in the middle stages of a transition in strategy and leadership. Spillane says Campbell is unlikely to generate growth in 2019 as it shifts gears and invests heavily in its transition. Campbell also has $9.6 billion in debt, which will continue to weigh on its valuation. Bank of America named CPB stock its top overall stock to sell in the first quarter. The firm has an "underperform" rating and $31 price target for CPB stock.
Dominion Energy (D)
Dominion is a regulated gas and electric utility with operations primarily in Virginia, North Carolina, Utah and Ohio. The stock also has a 4.6 percent dividend yield, but analyst Julien Dumoulin-Smith says Dominion may struggle to hit the low end of its growth targets. Dumoulin-Smith has major concerns about Dominion's Atlantic Coast Pipeline, which is being challenged in court and was delayed to 2021. He says uncertain costs and timelines related to the pipeline's construction will remain an overhang. Bank of America has an "underperform" rating and $72 price target for D stock.
Edison International (EIX)
Edison and its 4.1 percent dividend may seem like a safe play on a relatively stable utility stock. However, the recent bankruptcy filing of competitor PG&E Corp. (PCG) highlights just how dangerous it is for California electric companies these days. California has recently experienced several of the most devastating wildfires in its history, and the state is still sorting out wildfire liabilities. Despite Edison's earnings growth potential, Dumoulin-Smith says the stock simply has too much wildfire and mudslide liability risk to own. Bank of America has an "underperform" rating and $62 price target for EIX stock.
Kellogg Co. (K)
Kellogg joins Campbell as a powerful brand with a high dividend yield and a potentially difficult 2019 ahead. Spillane says that behind the 4 percent dividend, Kellogg's growth has stagnated. Cash flow is expected to be flat in 2019, and modest earnings and revenue growth won't come until at least the second half of the year. Spillane says the U.S. ready-to-eat cereal market has been particularly weak in recent quarters, and Kellogg's recent growth rates put management's long-term targets at risk. Bank of America has an "underperform" rating and $55 price target for K stock.
LyondellBasell Industries (LYB)
LyondellBasell is a leading producer of petrochemicals with high exposure to natural gas prices. The stock pays a 4.6 percent dividend, but analyst Steve Byrne says margin pressures in the company's polyethylene business are unlikely to subside in the near future. Byrne says the largest risk to LYB stock in 2019 is falling polyethylene prices in the U.S. and Europe. He says global polyethylene supply growth will continue to outpace demand growth, and there is downside risk to consensus earnings estimates. Bank of America has an "underperform" rating and $85 price target for LYB stock.
With a dividend yield above 6 percent, retailer Macy's pays one of the highest yields in the S&P 500 index. Unfortunately, analyst Lorraine Hutchinson says the fact that Macy's fell short of consensus expectations during the holiday sales season is a huge red flag given the relative strength of the U.S. consumer. Hutchinson says Macy's will need to invest heavily in its remaining stores simply to maintain its current level of sales, a recipe that doesn't bode well for margins. Bank of America has an "underperform" rating and $18 price target for M stock.
Philip Morris International (PM)
Analyst Lisa Lewandowski says tobacco giant Philip Morris is making the right call by investing aggressively in its IQOS smoke-free tobacco technology, but she says gaining share from the cigarette market may be more difficult and costly than investors realize. PM stock pays a 5.6 percent dividend, but the company recently guided for 2019 cigarette and heated tobacco volume to drop at least 1.5 percent. For now, Lewandowski says Philip Morris remains a "show me" story. Bank of America has an "underperform" rating and $74 price target for PM stock.
Seagate Technology (STX)
Seagate Technology designs and manufactures hard disk drives for server, PC and other electronic device storage. STX stock pays a 5.5 percent dividend, but analyst Wamsi Mohan says STX faces a secular challenge from the NAND flash memory market. Seagate's first-quarter margin guidance of 26 percent was well short of market expectations, and the company blamed factory underutilization and weaker market pricing. Mohan says Seagate is facing uphill battles as the PC market declines and flash solid-state drives gain market share. Bank of America has an "underperform" rating and $39 price target for STX stock.
Western Union Co. (WU)
Western Union is the global leader in money transfer services, another market that may be in secular decline thanks to the rising popularity of digital payment services. WU stock pays a 4.4 percent dividend, but analyst Jason Kupferberg says a 2019 guidance miss in the most recent quarter is not encouraging. He says low to mid-single digit revenue growth is a best-case scenario for Western Union in the near term, but digital disruption will make growth increasingly difficult in the longer term. Bank of America has an "underperform" rating and $20 price target for WU stock.
Avoid these high-yield stocks.
These nine stocks with dividend yields of 4 percent or more should be avoided, according to Bank of America analysts:
-- Campbell Soup Co. (CPB)
-- Dominion Energy (D)
-- Edison International (EIX)
-- Kellogg Co. (K)
-- LyondellBasell Industries (LYB)
-- Macy's (M)
-- Philip Morris International (PM)
-- Seagate Technology (STX)
-- Western Union Co. (WU)