You, as an investor, will have your own threshold limits for taking risks while choosing your portfolios. There are dynamic stocks out there to pick, if you like the adventure of taking risks. However, what do you do if you are a retiree or a person who is averse to risks? Worried about putting your eggs in the wrong basket? Read through to understand what stocks you need to completely stay away from. The stocks mentioned below are currently going through a highly volatile scenario and are not advisable for people who are risk-haters. These may be paying great dividends, but sadly, that is the only good point about them.
Consistent drop in earnings
Windstream Holdings (WIN, Financial), one of the biggest players in the rural telecom market, is currently going through an extended season of rough patch. The stock has an impressive dividend yield of 12.2%; however even this does not cover up its bad performances over the years. Retirees and investors looking for stable returns should stay away from this stock. One of the major reasons for the decline in Windstream’s market share was the emergence of the mobile phones. In the event of losing out a major chunk of its landline services business, Windstream entered into other businesses like broadband services, cloud computing and the like.
Profit margins and net incomes have been witnessing a downslide for the last few years now and hence it is not recommended for retirees especially. Business might look up in the future due to the diversification process and it could yield long term benefits for investors. On the dividends front too, things are not looking rosy for the company. In the near future, Windstream will be spinning off its net assets department into a REIT (Real Estate Investment Trust) and this split will announce the end of Windstream’s generous dividend policy. Annual dividends that are $1 per share will come down to $0.70 per share during this year, as per announcement from the top management. All these factors make Windstream a highly risky proposition now. The stock movement of the company for the last few months is seen below:
Competitors eating away market share
Telecom major AT&T (T, Financial), one of the premier dividend stocks in the market, is another stock that investors should avoid if they are looking for stable returns. AT&T has been enjoying a healthy competition in the wireless market, with yet another big name, Verizon (VZ, Financial) all these years. The two companies have consciously ensured that their competition does not impact their market shares, earnings or share prices in any way. However, recently, AT&T has been experiencing trouble from the least expected quarters.
Small-scale telecom operators like T-Mobile US (TMUS, Financial) and Sprint (S, Financial) have been growing like mushrooms in this industry. They keep on developing new plans at attractive rates and thereby have managed to woo customers to a large extent. AT&T, in order to fight back these strategies, had to introduce some price concessions to pull back its loyal customer base. Reduced prices will impact margins severely during 2015 and even its high dividend yield will not be able to camouflage the difficult challenges that AT&T has to go through this year. Share price movement of AT&T for last year, as seen below, indicates the downward trend of prices. At the current rate, this stock is not advisable for investors who don’t want to take any risks.
Conclusion
There are many more stocks that present huge risks to investors. The above two are the just the tip of the iceberg. You, as an investor, must exercise extra caution if you don’t want any risk stocks in your portfolio. These stocks are good examples of the fact that dividend yields alone are not enough to invest in a stock. Consistency of growth is very important and this is something that both these stocks don’t possess, as of now.
