2 dividend shares I’d avoid like the plague in today’s stock market
Photo of a man going through financial problems
I’m on a never-ending quest to uncover the best dividend shares on the FTSE indexes. This is part of a plan to build a steady stream of passive income before I retire.
However, during my search, I occasionally come across shares that I wouldn’t go near. Throwing money into stocks only to see the dividends cut and the share price collapse is an investor’s nightmare.
With that in mind, here are two dividend-paying stocks that I would give a wide berth to for now.
Off on the wrong foot
First up is shoe manufacturer and marketer Dr Martens (LSE: DOCS). I don’t have anything against the popular leather boots but things just aren’t going well lately. It’s had five profit warnings in the past three years, the most recent on 16 April. By March next year, it fears profit before tax could be down by as much as 66%.
In fairness, 2023 had more profit warnings for UK companies than during the 2008 financial crisis, so it’s not alone. As a specialist premium brand, it sells the type of products that many consumers simply can’t afford during economic hardship. At a much higher price point, leading UK luxury fashion house Burberry is facing a similar struggle.
Its saving grace is that it’s a strong brand with a history of good management. When (or if) inflation falls and the economy recovers, I’d expect to see it find its feet again. But until then, the attractive 6.8% dividend yield may be cut to save on costs. It’s only been paying dividends for a few years and already forecasts predict the yield will fall to 3.3% in the coming years.
Hopefully, new CEO Ije Nwokorie can turn things around when he takes office later this year. But with earnings forecast to decline at an average rate of 35% per year going forward, I wouldn’t buy the shares at the moment.
A rebranding catastrophe?
The asset manager abrdn (LSE: ABDN) is facing an entirely different set of problems. Since rebranding from ‘Standard Life Aberdeen’ to ‘abrdn’ in 2021, it’s faced a barrage of bad press and a 53% drop in share price.
Personally, I think the name is modern and fun – but it may be a bit ahead of its time for a financial firm. Although I doubt the name alone is to blame for the company’s struggles. After all, it has a strong balance sheet with minimal debt, high equity, and assets that far outweigh its liabilities. So what’s the deal?
My main concern is that dividend payments have been volatile and steadily decreasing. They fell from 24p per share in 2015 to 14p this year, while the yield increased to almost 10%. This shows just how much the share price has collapsed in the past decade. If things don’t get better soon, I can only imagine dividends will be cut further.
That said, abrdn is seeing something of a revival. After posting a £558m loss in 2022, it’s managed to come back into profit this year. And with earnings forecast to grow at a rate of 56% going forward, it may still have a bright future.
Until then, however, I won’t be adding it to my dividend portfolio.
Should you buy Abrdn now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence,
he says. Meanwhile, they’re hellbent on achieving net zero emissions.
No guarantees, but history shows...
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.