7 Dividend Stocks to Sell Before They Dive in 2023

Stocks to sell

The economy is either already in recession or it is likely to be in one in 2023. As a result, some dividend stocks are worth buying for investors. But as with any category of equities, there are also bad dividend stocks that investors should sell  This column, as indicated by the headline,  features a list of seven dividend stocks to sell.

Companies that issue dividends are generally mature firms that are not expected to deliver above-average growth.  However, although these stocks lack sizzle, they offer stability. That makes them an appealing choice for investors who are primarily looking to preserve their wealth.

But as 2022 is showing us, the best investments need to provide total returns that outpace inflation. This means that investors  should be getting some growth to go along with their dividends. And there are some dividend stocks that do not look poised to meet that standard.

So for this article, we’re looking at seven dividend stocks to sell before they dive in 2023.

MO Altria Group $46.71
CLX Clorox $148.78
GPS Gap $13.90
MAC Macerich $12.46
HBI Hanebrands $6.35
ZIM Zim Integrated $18.57
SMG Scotts Miracle-Gro $51.73

Altria Group (MO)

Source: ©iStock.com/NickyBlade

I can’t deny that Alex Sirois, another InvestorPlace columnist, recently gave investors a straightforward reason to buy Altria Group (NYSE:MO). Specifically, he pointed out that its dividend yield is currently over 8%. I can also buy the argument that MO stock is cheap and that the “sin stock” is valued correctly at its current level.

But  I’m going to consider the debt levels of many of the companies on this list. And I can’t be bullish on  Altria because of its high debt levels. The company has a negative debt-equity ratio, which means its liabilities exceed its assets. Further, its growth looks poised to slow.

As a result, I believe that,  if servicing Altria’s debt isn’t problematic for the company today, it will probably become very difficult for the firm down the road. It may choose to alleviate that problem by cutting its dividend

Sure, investors can buy MO stock and sell the shares if and when the company lowers its payout. Or they can sell it now and look for stocks that will reward them with higher total returns.

Clorox (CLX)

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Clorox (NYSE:CLX) is a staple of many buy-and-hold portfolios. The company is about as much of a defensive stock as value investors could hope for. CLX proved itself during the pandemic, and in 2022, its top line has continued to hold up well.

Clorox’s earnings, however, are a bit of a concern, and the reason for that is inflation. The company is attempting to pass along its higher costs, but it has not been able to do so, as its  margins are below the average of its sector.

However, those problems are not  reflected in CLX stock, which traded at a price–earnings (P/E) ratio of over 44 times in November and now has a P/E ratio of over 46 times, versus the sector’ average of around 27 times.

All of that may not matter to long-term investors who are enamored by the company’s dividend which has a yield of over 3% and has been growing for 35 years.  But, on the other hand, the growth of CLX’s dividend has been slowing. And with Clorox’s payout ratio  over 144%, there’s reason for investors to look at other options.

Gap (GPS)

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With a quick glance, you can see the appeal of Gap (NYSE:GPS) stock. The shares are up 77% since the end of September, and they still trade for less than $15 per share. Moreover,  the retailer’s second-quarter and third-quarter results both beat analysts’ average estimates.

That said, most analysts remain less than impressed with GPS. Their average stock price on the shares are somewhere around $11. That’s probably due to the company’s own projections for a “just ok” holiday season. Add in the high likelihood of a recession occurring sometime in 2023, and there are reasons to be concerned about Gap.

Like Josh Enomoto, another InvestorPlace columnist,  I believe that there’s a great deal of competition in the premium apparel space. Additionally other names, like Target (NYSE:TGT), that are in similar markets as Gap, have  a far more attractive dividend. So at a time when you have to buy the best and sell the rest, GPS stock belongs on this list of dividend stocks to sell.

Macerich (MAC)

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The first weekend of holiday shopping was surprisingly solid for brick-and-mortar retailers. It seems like after two years of anti-coronavirus measures, many consumers were willing to put up with holiday crowds. That should be good news for Macerich (NYSE:MAC) which is a real estate investment trust (REIT) that focuses on high-end mall properties.

But the saying, All that glitters is not gold” may apply to MAC stock. That’s because the company’s fundamentals are a mess, as it has a high debt-to-equity ratio, while its profit margin and return on assets are both below the sector averages.

Plus, the company’s properties are generally located in some of the nation’s most densely populated areas. However, several of those cities, such as Chicago, are currently dealing with rising crime rates that are likely to keep retail traffic down.

REITs are generally attractive to investors because they are required to pay out a significant portion of their profits in the form of a dividend. But Macerich’s earnings have been plummeting, and that means that its dividends will be falling as well.

Zim Integrated Shipping Services (ZIM)

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I can understand the desire to buy a shipping stock like Zim Integrated Shipping Services (NYSE:ZIM).  After all, the stock offers an attractive dividend, and investors  can hold onto the stock and wait for the company’s growth to rebound, which will definitely occur when China fully reopens.

But since it’s the holiday season, I’ll assert that the expression, “if ifs and buts were candy and nuts,” applies to ZIM stock. The reality is that investors have been waiting a calendar year for the slowdown of container shipping to reverse. They’re still waiting. China is beginning to loosen the most draconian of its restrictions, but the Chinese economy is far from firing on all cylinders.

And even if China recovers, concerns about global demand are rising. All in all, ZIM is facing a great deal of uncertainty. And since investors hate uncertainty, it’s probably a good time to stay away from ZIM stock.

Hanesbrands (HBI)

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Hanesbrands Inc. (NYSE:HBI) stock is down 62% for the year. By itself, that’s not a reason to sell a stock if the company looks well-positioned to grow. That’s not the case, however, for Hanesbrands, which has multiple concerns that make owning its stock risky.

Based on Hanesbrands’ headline numbers, the company’s third-quarter earnings report was decent, as it narrowly beat analysts’ average estimate on the bottom line and only slightly missed their mean top-line estimate.

But both numbers declined year-over-year – and this isn’t the first quarter that this has happened to HBI. It appears that the firm’s overstocked inventories are eating into its free cash flow and exacerbating its debt problem.

Debt is a real problem for HBI as the company has a debt–equity ratio of 5.4. As I cautioned in November, if the company chooses to refinance its debt, it will pay a  relatively high interest rate. Alternatively, HBI could  cut its dividend. Both options are unappealing for investors

Scotts Miracle-Gro Company (SMG)

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Last on this list of dividend stocks to sell is Scotts Miracle-Gro Company (NYSE:SMG). Like many home-and-garden companies, the company was a big winner during the pandemic. However, those days are long gone and so are the gains by SMG stock.

When the company reported its earnings in August, it lowered its full-year revenue forecast and predicted that its top line would fall 8%-9% in 2022. And in November, the company’s results showed that forecast coming to fruition. However, SMG stock popped after the dismal report, possibly on expectations that the shares had bottomed.

There may have also been hope that the company’s cannabis business, Hawthorne Gardening, would improve going forward. The business’ sales have fallen sharply as it deals with similar oversupply issues as those affecting many cannabis companies.

There may be some deep value in Scotts Miracle-Gro as InvestorPlace columnist Will Ashworth suggested in September. And the company’s dividend, which currently yields over 5%, may seem attractive. But right now the company’s shares don’t look poised to appreciate.

On the date of publication, Chris Markoch 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. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

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