Dividends that provide a passive source of revenue for investors often seem great on the surface. Stocks with high yields can sometimes indicate a company’s instability or solely serve the purpose of attracting investors without offering sustainable returns.
The three stocks we’ll introduce in this article have very high dividends but shaky financials and past troubles with cuts. Investors should be aware of the real picture behind the attractive dividend rates that these companies proclaim.
To better understand these stocks, we’ll detail their long-term performances, any significant changes made to their dividend rates, and relevant financial history.
Icahn Enterprises (IEP)
Icahn Enterprises (NASDAQ:IEP) is the company of Carl Icahn, a well-known investor. Despite a history of large payouts, it has seen a lot of scrutiny in its time. Troubles that Icahn Enterprises has faced include a federal investigation for fraud. This is a questionable trend by short-sellers who profit from a stock’s poor performance.
After the investigation was announced last May, Icahn Enterprises’ stock price took a significant hit. It dropped from its $50 base to its current $17 low. This is still reflected in IEP’s current price.
As a result of this poor performance, Icahn Enterprises offers a forward yield of 22.90%, a significant cut from its more than 30% yield from a year ago. The negative performance has also attracted the attention of short-sellers who regularly take advantage of the downward trends that affect it.
With the current state of Icahn Enterprises and its ability to provide investors with promised returns, you should think twice before buying or keeping this stock.
Nu Skin Enterprises (NUS)
Currently, Nu Skin Enterprises (NYSE:NUS) has a forward yield of 11.77%. But, the company’s financials from the past year indicate payouts are unlikely to be sustainable.
In fact, Nu Skin Enterprises has paid out over 130% of its profit yet was still forced to make quarterly dividend cuts. And this year, it is experiencing negative dividend growth. The company is not making more than it is paying. So payouts are unlikely for its current dividend yield.
Part of these cuts come from a year-over-year (YOY) revenue decline of near 6%. Additionally, the company’s layoffs last November were part of a restructuring project. These terminations were a direct result of the company’s poor performance in last year’s Q3.
With Nu Skin Enterprises’ current low, investors should understand the possibility of further dividend cuts. Think twice before buying NUS simply for the high yield.
AT&T (T)
Possibly the largest worldwide telecommunications companies, AT&T (NYSE:T) offers a dividend yield of 6.52%. By comparison, the S&P 500 average is 2%. However, AT&T’s Q4 report included a -$0.07 drop in earnings per share YOY.
Even though revenue was up in 2023 YOY, the company continues facing daunting debt of over $150 billion with rising interest rates. High debt is accompanied by the risk that AT&T will not be able to pay the high dividend it promises.
In addition to lower-than-expected earnings last year, AT&T hasn’t performed in line with the S&P 500 average in total returns. It’s never been an outstanding performer for investors in the past. Therefore, despite promises of high yields, the safety of those dividends should be called into question.
On the date of publication, Joel Lim did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.