7 Drowsy Dividend Stocks to Sell or Stay Away From

The Dow Jones Industrial Average hit an all-time high of 29,551.42 on Feb.

(Image credit: Getty Images)

The Dow Jones Industrial Average hit an all-time high of 29,551.42 on Feb. 12. Investors continued to pile into stocks despite excessive valuations and global fears of the coronavirus – an outbreak that has already made SARS relatively tame by comparison.

The worst, investors thought, was over. The number of new cases had plateaued. Then news surfaced Feb. 24 that cases of coronavirus were surging outside China. The Dow lost 14% of its value over the next five days of trading, closing at 25.409.36. The Dow has continued to log massive price swings since then.

Volatility is back, and investors seeking shelter from this storm might be interested in owning dividend stocks to ride it out. That's a good idea, but remember: Dividend-paying companies are not all the same.

The DIVCON system (opens in new tab) from exchange-traded fund provider Reality Shares is helpful in an environment like this when quality is essential. DIVCON's methodology uses a five-tier rating to provide a snapshot of companies' dividend health, where DIVCON 5 indicates the highest probability for a dividend increase, and DIVCON 1 the highest probability for a dividend cut. And within each of these ratings is a composite score determined by cash flow, earnings, stock buybacks and other vital factors.

If dividend safety is your focus, you want to own DIVCON 5 stocks because they are the crème de la crème of dividend safety – and more likely to keep the dividend increases. The lower the score, the more cautious you should be.

Here are seven dividend stocks to sell or stay away from based on low DIVCON ratings over the past couple of months. While the fundamentals behind the scores are hardly death sentences, these stocks are best avoided or sold so you can put your money to work in more resilient opportunities.

Data is as of March 4. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

Will Ashworth
Contributing Writer, Kiplinger.com

Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he's a keen student of business history. Married and now living in Halifax, Nova Scotia, he's also got an interest in equity and debt crowdfunding.