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.
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.
