Two key goals in retirement are to generate safe income and preserve capital. No one wants to outlive their nest egg.
Dividend-paying stocks are a popular asset class used to generate predictable, growing income. However, unlike the interest income paid by government-backed Treasury bonds, a common stock dividend can be far more discretionary in nature. When times get tough, a business will typically opt to reduce its dividend before jeopardizing its ability to meet its debt obligations, preserve its credit rating or invest in its long-term growth projects.
Unfortunately, a number of businesses are facing the tough decision to reduce their dividend at any one moment.
To alert investors of stocks that have the highest risk of reducing their current dividend in the future, Simply Safe Dividends created a Dividend Safety Score system that analyzes a company’s payout ratios, debt levels, recession performance, cash flow generation, recent earnings performance, dividend longevity and more.
Dividend Safety Scores are available for thousands of stocks, and scores range from 0 to 100. A score of 50 represents a borderline safe payout, but conservative investors are best off sticking with companies that score over 60 for Dividend Safety.
Investors can learn more about Dividend Safety Scores and view their real-time track record here(since inception they have flagged 99% of dividend cuts in advance).
I used Dividend Safety Scores to identify seven companies that have either recently cut their dividend and remain in trouble, or that could be facing a dividend cut in the near future. Owning companies like these can hurt a conservative retirement portfolio.
Top Bank Stocks To Watch Right Now: Pfizer, Inc.(PFE)
Investors have been waiting for Pfizer’s new drugs to finally offset declining demand for Lipitor, and this could be the year in which their patience is rewarded.
Pfizer finished 2017 with solid momentum that includes a return to organic growth and full-year EPS of $2.65, up 11% from 2016. The company’s forecast for 2018 is for revenue growth of 4% and EPS growth that matches last year’s 11% improvement. If it can hit those targets, it will be the first year of non-organic revenue growth at the company since Lipitor lost patent protection in 2011.
Driving the company’s improving outlook is a slate of important drugs, including the breast cancer drug Ibrance, the autoimmune-disease drug Xeljanz, the prostate cancer drug Xtandi, and the anticoagulant, Eliquis. In 2017, increasing demand for those drugs resulted in an 8% increase in sales at Pfizer’s innovative-health segment.
A return to growth would be great news for income investors because Pfizer already yields a market-beating 3.8%. If its sales growth accelerates, then operating leverage will give it additional wiggle room to boost its dividend payout.
Top Bank Stocks To Watch Right Now: Enbridge Inc(ENB)
Canadian energy infrastructure giant Enbridge (NYSE:ENB) has lost nearly a quarter of its value over the past year, and currently sells for just nine times cash flow, well below the peer group average of nearly 12 times 2018 cash flow. That sell-off also pushed its fast-growing dividend up to a 6.7% yield, which is the highest it has been since the early 1990’s.
The plunge doesn’t make much sense because Enbridge recently completed a needle-moving merger and has a massive backlog of expansion projects underway. These growth initiatives should enable the company to grow cash flow per share at a 10% annual pace through 2020, which positions it to raise its payout at a similar rate. That combination of a high current yield that Enbridge expects to grow at a high rate could fuel top-tier total returns for investors in the coming years as its valuation reverts closer to the peer group average.
Top Bank Stocks To Watch Right Now: Apple Inc.(AAPL)
Some investors claim that Apple’s high-growth days are over. Yet the tech giant posted accelerating double-digit sales growth over the past three quarters, and analysts expect its revenue to rise 14% this year. Apple’s earnings are also expected to climb 24% this year.
Those are remarkable growth figures for a stock that trades at less than 16 times this year’s earnings. Moreover, Apple pays a forward dividend yield of 1.4%, and it has hiked that payout annually for five straight years. It also recently announced a new $100 billion buyback — which is enough to repurchase over 10% of its outstanding shares at current prices.
Apple still depends heavily on the iPhone, which generated 62% of its sales last quarter. But its services revenue — from Apple Pay, Apple Music, iTunes, its App Store, and other services — also jumped 31% annually during the quarter and accounted for 15% of its top line. Apple also stated that its paid subscriber base grew by 100 million in the last year to 270 million.
IMAGE SOURCE: GETTY IMAGES.
That massive user base gives Apple the foundation to launch a wide variety of new services for adjacent markets — like streaming video, online news, and healthcare — to lock in users and reduce its dependence on hardware sales. That’s an advantage none of its smartphone rivals can match.
As I’ve said before, investors should think of Apple as a consumer goods company instead of a tech one. By comparing Apple’s valuations to other consumer goods companies, it’s easy to see how undervalued this stellar growth stock is.
Top Bank Stocks To Watch Right Now: Kinross Gold Corporation(KGC)
Despite 2018 setting up as the year to acquire gold stocks, no sector is immune from market irrationality. Case in point is Kinross Gold Corporation (USA) (NYSE:KGC). Just recently, KGC stock absorbed a painful body blow thanks to the White House imposing new Russian sanctions. Kinross will receive 20% of its precious metals production from Russia.
On surface level, KGC volatility appears to make sense. Like every other gold miner, Kinross is fighting back after several frustrating years. It simply can’t afford a 20% production disruption.
However, we shouldn’t forget that KGC is a Canadian company. Yes, Canada has sometimes earned a reputation as the U.S. lackey. However, it’s obvious that Russia’s Vladimir Putin has an issue with American dominance in geopolitical affairs.
Kinross disputes that the fresh sanctions have negatively impacted the company. They report that Russian operations are running as previously scheduled. Of course, they would say that, but I don’t see an upside for the Russians to punish a Canadian miner. Russia’s economy isn’t exactly a shining beacon, and they’ll be hurting themselves unnecessarily.
Thus, I think the extreme selloff in KGC stock is a contrarian opportunity. Furthermore, management has really cleaned out their cost of goods sold, as well as their operating expenses. The end result is a company that is finally profitable.
This latest news is nothing more than irrational drama. Feel free to put KGC in your gold stocks to buy list.