Skip to headerSkip to main contentSkip to footer
Get our Free E-newslettersGet our Free E-newsletters
Kiplinger logoLink to homepage
Get our Free E-newslettersGet our Free E-newsletters
Subscribe to Kiplinger
Subscribe to Kiplinger
Save up to 76%
Subscribe
Subscribe to Kiplinger
  • Store
  • Home
  • Investing
  • Retirement
  • Taxes
  • Personal Finance
  • Your Business
  • Wealth Creation
    • Podcasts
    • Economic Outlooks
    • Tools
    • Kiplinger's Personal Finance Magazine
    • The Kiplinger Letter
    • The Kiplinger Tax Letter
    • Kiplinger's Investing for Income
    • Kiplinger's Retirement Report
    • Store
    • Manage My E-Newsletters
    • My Subscriptions
Skip advert
  • Home
  • investing
investing

5 Dividend Stocks to Consider Selling Now

With interest rates in the basement and likely to stay there for some time, investors have, for good reason, flocked to dividend-paying stocks.

by: Kathy Kristof
August 25, 2016

Thinkstock

Skip advert

With interest rates in the basement and likely to stay there for some time, investors have, for good reason, flocked to dividend-paying stocks. But demand has pushed up the prices of many popular payers to possibly unsustainable levels. These stocks could be vulnerable to steep declines.

People who can live off of their dividend income and can ignore share-price fluctuations may not have to worry much about a market reversal. After all, given enough time, the price of a good company will eventually recover. But investors who can’t stomach a downturn—even if it proves temporary—may want to lighten up on some overpriced dividend stocks.

We’ve identified five dividend payers that look overvalued and that you should consider unloading. Keep in mind that if you own these stocks in a taxable account, selling could generate capital gains, on which you might have to pay income taxes.

All prices and returns are through August 19. Price-earnings ratios are based on estimated earnings over the next four quarters.

Skip advert
Skip advert
Skip advert

1 of 5

Campbell Soup

Courtesy Campbell Soup

Skip advert
  • Symbol: CPB

    Price: $61.03

    Market capitalization: $18.8 billion

    Annual dividend rate per share: $1.25

    Dividend yield: 2.0%

    Price-earnings ratio: 20

    Investors have taken comfort in Campbell Soup and the comfort foods it produces for more than a century. But Campbell, which makes its eponymous soups, Pepperidge Farm baked goods and Prego pasta sauces, among other things, is a mature company with stagnant sales. It essentially has been able to generate modest earnings gains by cutting costs. And although analysts see earnings rising by 6% in the fiscal year that ends in July 2017, they expect revenues to inch up by just 1%.

  • SEE ALSO: 4 High-Yield Stocks Worth the Risk

Tepid growth notwithstanding, Campbell’s shares have returned 24% over the past year. The stock, which boasted a dividend yield of 4.2% at the end of 2012, now pays just 2.0% (yield is calculated by dividing the annual dividend rate by the share price). That’s less than the 2.2% yield of Standard & Poor’s 500-stock index and the 2.6% yield of the average consumer-staples stock. Moreover, Campbell hasn’t raised the payout since 2013. And at 20 times estimated year-ahead earnings, Campbell’s P/E is higher than the overall market’s P/E of 17.

Skip advert
Skip advert
Skip advert

2 of 5

Church & Dwight

Courtesy Church & Dwight

Skip advert
  • Symbol: CHD

    Price: $98.95

    Market capitalization: $12.7 billion

    Annual dividend rate per share: $1.42

    Dividend yield: 1.4%

    Price-earnings ratio: 27

    Church & Dwight, maker of Arm & Hammer and OxiClean products, has long been a stock market star, thanks largely to the company’s ability to turn modest upticks in sales into impressive profit gains. The stock’s price has doubled since October 2012. But over that period, the dividend rate has climbed only half as much, from 96 cents per share to the current $1.42. As a result, the yield is now just 1.4%. Meanwhile, earnings have climbed just 11% annualized over the past four years, and analysts expect slightly slower growth over the next few years. The stock sells for a rich 27 times estimated earnings.

  • SEE ALSO: Is There a Bubble in Dividend Stocks?

Simon Shoucair, an analyst at Value Line, says Church & Dwight is a fine company, but at today’s price, he waves investors away from the stock. “Those seeking to buy and hold should look elsewhere,” he says.

Skip advert
Skip advert
Skip advert

3 of 5

Consolidated Edison

Courtesy Consolidated Edison

Skip advert
  • Symbol: ED

    Price: $76.50

    Market capitalization: $23.3 billion

    Annual dividend rate per share: $2.68

    Dividend yield: 3.5%

    Price-earnings ratio: 19

    Shares of the big New York City-based utility have delivered un-utility-like results lately, soaring 34% since June 2015. Like most utilities, Con Ed is a slow grower. Earnings have climbed at an annualized pace of 3% over the past five years, and analysts see them edging up at just 2% annually over the next few years. Meanwhile, the dividend has risen at annual rate of just 2.2% over the past five years. With a P/E of 19, the stock looks precarious, says Travis Miller, director of utilities research at Morningstar.

Moreover, regulators in New York, where Con Ed does the bulk of its business, are rethinking the utility industry rulebook. In a state already known for tough regulation, the risk of even tighter standards makes Con Ed’s rich valuation seem foolhardy, says Miller. He suggests that investors step to the sidelines until the regulatory outlook clears up.

Skip advert
Skip advert
Skip advert

4 of 5

Sysco

torbakhopper via Flickr

Skip advert
  • Symbol: SYY

    Price: $52.48

    Market capitalization: $29.3 billion

    Annual dividend rate per share: $1.24

    Dividend yield: 2.4%

    Price-earnings ratio: 23

    Shares of Sysco, the nation’s leading distributor of food and food-related equipment and supplies to restaurants, hospitals and other institutions, have been on a tear. Year to date, the stock has returned 29%, far outpacing the overall market’s advance. Because the share price has been climbing much faster than Sysco’s dividend, the stock, which yielded nearly 4% at the end of 2013, now pays 2.4%.

  • SEE ALSO: 6 Good Dividend Stocks That Yield 5% or More

Sysco is a steady grower. Earnings from operations rose 10% in the fiscal year that ended June 30, and analysts see a similar increase in the current fiscal year. To be sure, Sysco’s predictable earnings and healthy balance sheet provide comfort to risk-averse investors. But Value Line analyst Robert Greene says the stock’s sizzling performance, which has pushed up the P/E to 23, leaves little room for near-term price appreciation.

Skip advert
Skip advert
Skip advert

5 of 5

Xcel Energy

Seth Tisue via Wikipedia

Skip advert
  • Symbol: XEL

    Price: $42.42

    Market capitalization: $21.6 billion

    Annual dividend rate per share: $1.36

    Dividend yield: 3.2%

    Price-earnings ratio: 19

    Xcel Energy is the parent of utilities that provide electricity, natural gas or both in the central U.S.—Colorado, Michigan, Minnesota, New Mexico, Texas, Wisconsin and the Dakotas. The company has done a good job of working with regulators to produce steady profits, and it in turn has rewarded investors with regular (though modest) dividend hikes.

  • QUIZ: How Well Do You Know Dividends?

But the geographic regions Xcel’s utilities serve aren’t growing much, so they’re likely to produce tepid gains in both revenues and earnings. The company is now waiting to hear whether Minnesota regulators will approve rate hikes that could help fuel future earnings and revenues, but that decision isn’t likely to be made for another year.

Yet, like many other utilities, Xcel’s stock has been booming—the shares have roared ahead 33% since June 2015. Morningstar’s Miller says the stock’s price is 26% higher than he thinks the company is worth. And Value Line analyst Paul Debbas says the stock’s long-term total-return potential is “negligible.”

Skip advert
Skip advert
Skip advert
  • bonds
  • dividend stocks
  • investing
  • Campbell Soup (CPB)
  • Investing for Income
Share via EmailShare on FacebookShare on TwitterShare on LinkedIn
Skip advert
Skip advert
Skip advert
Skip advert

Recommended

5 Best Dow Dividend Stocks to Buy Now
blue chip stocks

5 Best Dow Dividend Stocks to Buy Now

This mini-portfolio of blue-chip dividend payers is positioned well to both generate income and tackle headline headwinds for the rest of 2022.
June 27, 2022
Move Over ETFs: Direct Indexing Is an Investment Strategy Worth Paying Attention to
investing

Move Over ETFs: Direct Indexing Is an Investment Strategy Worth Paying Attention to

More flexibility, more control, the potential for higher returns and tax-reducing strategies: With pros like that, could direct indexing be right for …
June 25, 2022
Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
June 24, 2022
Dividend Stocks Are Paying Off for Income Investors
dividend stocks

Dividend Stocks Are Paying Off for Income Investors

Investors can weather the storm of a volatile market with dividend-paying stocks.
June 23, 2022

Most Popular

8 Money Tips for Seniors Suffering from Inflation
Inflation

8 Money Tips for Seniors Suffering from Inflation

This year has been an especially tough one for seniors on fixed incomes. To stay on track, try these eight financial survival tips.
June 26, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
An Easy Way to Find How Much You Will Spend in Retirement
retirement planning

An Easy Way to Find How Much You Will Spend in Retirement

One simple math equation can help you determine where to start building your retirement income plan, and whether your money should last.
June 27, 2022
  • Customer Service
  • About Us
  • Advertise With Us (PDF)
  • Privacy Policy
  • Cookie Policy
  • Kiplinger Careers
  • Accessibility
  • Privacy Preferences

Subscribe to Kiplinger's Personal Finance

Be a smarter, better informed investor.
Save up to 76%Subscribe to Kiplinger's Personal Finance
Do Not Sell My Information

Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site www.futureplc.com
© Future US LLC, 10th floor, 1100 13th Street NW, Washington, DC 20005. All rights reserved.

Follow us on InstagramFollow us on FacebookFollow us on TwitterConnect on LinkedInConnect on YouTube