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All Contents © 2017The Kiplinger Washington Editors
By James Brumley
| November 2016
While most traders love a sexy stock pick every now and then, at the end of the day, the bulk of people’s holdings are the tried-and-true “old guard” names. You know, companies designed to reliably grow a retirement portfolio to be tapped during an investor’s golden years.
Slow and steady wins the race, and you can never go wrong owning a household name, right? Well, what if investors’ perennially favorite names weren’t even coming close to dishing out the consistent progress most people simply presume is a foregone conclusion?
It’s happening with more stocks than you might imagine.
Today, we’re going to look at seven large-cap stocks that could very well hinder your retirement (even during retirement) because they’re not actually providing the growth nor the income they’re supposed to be driving.
And a word of caution: Some of these names may be quite surprising. But numbers don’t lie.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Market cap: $95 billion
Dividend yield: 3.4%
Technically speaking, McDonald’s Corporation isn’t the largest restaurant chain in the world … in terms of locations. That honor belongs to Subway, which sports 38,976 locales versus McDonald’s 32,737.
In terms of revenue, though, the Golden Arches easily dwarf even the next nearest player.
Surely such a giant makes for a must-have name that will put a solid retirement within reach, right? Not so fast. While MCD shares have performed well enough since the most recent economic turnaround in early 2009, they’ve trailed the market’s performance during that time, and the dividend yield of 3.4%, while good, isn’t exactly show-stopping in relation to McDonald’s growth prospects.
It’s not as if the restaurant chain is in a position to keep growing at the impressive pace it grew yesteryear. Consumer tastes and preferences are changing as they seek out healthier options. Not only is McDonald’s ill-equipped to compete in the changing market, it’s a brand name that’s been inextricably linked to the idea of unhealthy eating.
That hurdle might not be cleared for years, if it’s ever cleared at all.
Market cap: $9.4 billion
Dividend yield: 3.3%
Giving credit where it’s due, former photocopier icon Xerox Corp gave it one heck of a try, shifting its focus to digital document management and other business services when email and then networks made paper copies obsolete.
But it hasn’t been a great fit. Xerox is now into its fifth straight year of declining revenue, and margins have deteriorated to practically nothing.
Worse, there’s no end in sight.
It’s not Xerox’s fault. It was just never built to be a business that has a lot to offer in the digital age, and making such a shift wouldn’t be easy for any organization. Xerox may survive, but XRX stock may never thrive again.
Market cap: $12.8 billion
Dividend yield: 4.9%
One would think any sizable utility company would be able to not just turn a consistent profit, but make slow and steady progress as time moves along.
In turn, one would think those improving numbers could support a rising dividend that drives income before and during retirement.
One would be wrong, however — at least when that utility name is Entergy Corporation
Entergy is classified as a utility provider, and it does perform that service. But ETR also is a wholesale distributor. Whatever the mix of businesses, the organization has been habitually stagnant. In 2008, the organization turned $13.1 billion worth of revenue into income of $1.22 billion. Over the course of the past four quarters, Entergy has driven $10.7 billion in sales and reported income of $1.3 billion. And it’s not like any years between then and now looked too terribly different.
Granted, the dividend yield of 4.9% is nothing to sneeze at. But the current quarterly payout of 85 cents per share is only marginally better than the 83 cents it was paying back in 2010. Meanwhile, the stock is only trading where it was in 2009.
There’s no growth chemistry here.
Market cap: $60 billion
Dividend yield: 2.2%
It’s a little tough to believe, butDow Jones Industrial Average component E I Du Pont De Nemours And Co. — you know it better as just DuPont — has gained a mere 49% over the past 20 years.
Granted, DuPont had a couple of major setbacks, and was hit especially hard in 2008-09. All stocks were upended around that time, though, and the vast majority of them have a strong enough performance before and after the subprime meltdown to more than offset that relatively brief rough patch.
And it’s not like the dividend payout or the growth of that dividend has improved tremendously during that time, either. In 1993, DD was shelling out 22 cents per quarter. As of last quarter, it was paying 38 cents per share. That means its dividends have only been increasing by about 2.4% annually since then. The result is a modest 2.2% dividend yield.
Investors would have been better off with nearly any other stock.
Market cap: $12.2 billion
Dividend yield: 9.3%
Centurylink Inc has a handful of rabid fans — it would be a real kick to see the $12 billion company do some real damage to much bigger rivals Verizon Communications Inc. (VZ) and AT&T Inc. (T).
But that’s not a realistic expectation for Centurylink. And there comes a time when the reality has to set in that this smaller player is being pushed around by (and held in check by) the industry’s big boys. Centurylink’s revenue has been grinding lower every year since 2012, and margins have been just mediocre.
It gets even more discouraging than that, too.
CTL’s current price of $24 per share is where it was trading in early 1998. That’s a lot of wasted time, and the dividend payout has been more than the company has earned for years now. So while Centurylink’s 9%-plus yield looks great, it’s not sustainable unless something drastic changes, and Centurylink hasn’t given anyone reason to think it can effect such changes.
Market cap: $255 billion
Dividend yield: 3.2%
There’s no denying General Electric Company is the quintessential conglomerate stock, and may well be the most widely owned company in most retirement portfolios. There’s also no denying it’s earned its stripes as a must-have long-term play.
A closer look at today’s GE, however, reveals that it’s not the same quality investment it used to be.
To its credit, General Electric still makes top-notch industrial equipment … particularly its utility-level equipment and aircraft parts. Its healthcare division is a juggernaut as well.
The company has struggled to keep up with the digitalization of the world, however, when that movement became an earnest one earlier this century. Then-CEO Jack Welch managed to keep working his magic for a while, but as time passed, he increasingly became a fish out of water. Even when he passed the torch to a younger Jeff Immelt, it was clear General Electric was largely trapped in its old ways.
The end result? GE stock has yet to reclaim its pre-2008 meltdown high, and that high didn’t even come close to matching the stock’s pre-2000 peak. GE has simply lost its touch.
Some will argue the introduction of General Electric’s Predix platform will fully bring the company into the modern digital era, giving it a toehold in the massive Internet of Things market. And, that’s largely true. Not even GE truly knows what that future will look like though, or what kind of competition it will face.
In the meantime, the conglomerate continues to spin off what used to be some of its most fruitful divisions. Focus helps, but GE is now trying to shrink its way to success.
Market cap: $40 billion
Dividend yield: N/A
This one will undoubtedly be the most controversial entry on the list of the market’s least compelling retirement stocks. That’s in part because it’s not a stock — here, we’re talking about an exchange-traded fund. But the SPDR Gold Trust is a “large cap,” at $40 billion in assets.
Gold is not only a hedge against inflation, but also a hedge against the implosion of other categories of investments. And, in the event of a complete global economic collapse some say it will be the only asset with any meaningful value.
The basic premises of those theories more or less hold water. That doesn’t necessarily make it a great retirement holding though, for a handful of reasons.
The biggest of those reasons is, it’s only an effective hedge as long as the rest of the market agrees it’s a hedge during tough times. If other investors don’t see it as a necessary hedge at XYZ date in the future, then it’s just another shiny metal. And it doesn’t take a look too far back in history to see gold has run hot and cold, and run unpredictably … even irrationally.
In other words, it’s a trade, rather than an investment.
This article is from James Brumley of InvestorPlace. As of this writing, he did not hold a position in any of the securities discussed.
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