2 dividend shares I wouldn’t touch with a bargepole in today’s stock market
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Each month I put money into the inventory market in a bid to extend my passive earnings. I attempt to discover dividend shares that I feel are well-placed to extend their payouts within the years forward.
Naturally, not all shares I contemplate will win me over. Fairly the alternative, in actual fact.
Listed here are two dividend-paying UK shares that I’m avoiding just like the plague proper now.
A FTSE 100 wealth-shredder
Proper now, the dividend yield of BT Group (LSE: BT.A) is 7.4%. On paper, that appears attractive.
Nonetheless, a fast look on the historical past of the payout tells me I ought to train excessive warning.
Monetary yr | Dividend per share |
2024 (forecast) | 7.50p |
2023 | 7.70p |
2022 | 7.70p |
2021 | 0.0p |
2020 | 4.62p |
2019 | 15.4p |
1986/87 (as British Telecommunications) | 8.45p |
To be honest, the potential dividend for this yr is roofed 2.5 instances by trailing earnings. That implies a strong margin of security.
Nonetheless, on the finish of September, the corporate’s web debt place was £19.9bn — almost double its market cap! Within the phrases of Scooby-Doo as he wheels away in terror, “Yikes!”
In the meantime, there may be rising competitors within the UK broadband market from various community suppliers (or ‘altnets’) akin to CityFibre. These are taking volumes and limiting the pricing energy of BT’s Openreach.
UBS thinks the telecoms big must spend extra to compete, threatening the dividend shifting ahead. “We assume [the dividend per share] halves to three.85p,” the financial institution stated, citing larger capital expenditure and strain on money circulate.
Now, this doesn’t imply BT will turn into a poor funding from 104p in the present day. Regardless of UBS’s bearishness, analysts’ consensus goal stands at 178p, a whopping 71% above the present share value.
This implies the inventory is considerably undervalued. Nonetheless, that has been the case for so long as I can keep in mind. And over this time, BT simply retains shedding increasingly market worth.
Certainly, the share value has now fallen 70% in 10 years!
I simply don’t suppose the telecoms business – and BT particularly – is a lovely place to take a position my cash.
Big ongoing capital necessities, low progress, and rising competitors are unlikely to vary the long-term image right here, for my part.
A FTSE 250 free-faller
The second dividend-paying inventory I’m avoiding is Dr Martens (LSE: DOCS). Once more, in concept, the juicy 8.6% dividend yield seems to be lip-smacking. It’s greater than double the FTSE 250 common.
Nonetheless, this excessive yield is because of a 12-month share value plunge of 58% slightly than bumper dividend hikes.
The bootmaker solely began paying dividends in 2022, however that quick report already seems to be in peril after the agency simply issued its fifth revenue warning in three years.
For this monetary yr (which has simply began), the agency’s worst case state of affairs is for pre-tax revenue to be only a third of final yr’s £159m. And working margins are below severe strain.
Granted, the financial backdrop is difficult for many retailers. So it’s completely potential that gross sales may rapidly choose again up as soon as shoppers have a bit more money to spare.
Moreover, Dr Martens has introduced that CEO Kenny Wilson will probably be succeeded by chief model officer Ije Nwokorie. Maybe he can freshen issues up.
Nonetheless, it’s widespread for brand new administration to reset (and even cancel) the dividend of a struggling firm. I worry that is on the playing cards right here. So I’m investing my cash elsewhere.