Dividends are powerful incentives for investors. Many investors rely on regular dividend payments to provide income. Dividends also allow investors to grow their portfolios through consistent reinvestments.
Many investors choose to own high-yield dividend stocks for higher payouts. These companies pay a high percentage of their free cash flow to shareholders. Investors will often stick with a stock that is underperforming the market if it pays a high-yielding dividend. A reduced or suspended dividend payment will send investors screaming for the exits. Even the threat of a dividend cut is often enough to prompt a steep selloff in a stock.
For these reasons, it is important for investors to keep an eye on any dividend stocks they own and be watchful of situations that could put the payment in jeopardy. Here are three dividend stocks waving massive red flags right now.
Icahn Enterprises (IEP)
It was the dividend cut heard around the world. News in early August that Icahn Enterprises (NASDAQ:IEP) cut its quarterly dividend payment in half to $1 a share sent the company’s share price crashing down 30%. IEP stock is now down 60% this year and the shares are changing hands 70% lower than where they were five years ago.
With the share price continuing to trend lower and Icahn Enterprises under pressure, there are rumors circulating that the dividend could be cut more or scrapped altogether.
The dividend cut came after Icahn Enterprises was targeted by well-known short seller Hindenburg Research, which accused Carl Icahn of operating a de facto Ponzi Scheme, using new investor money to pay a dividend payout that was set at unsustainable levels. Icahn was initially defiant but ended up lowering his company’s quarterly payment by 50%.
The previous dividend of $2 a share each quarter gave Icahn Enterprises a dividend yield of more than 25%, which was the highest among stocks listed on the benchmark S&P 500 index.
Paramount Global (PARA)
Film and television studio Paramount Global (NASDAQ:PARA) is another company whose share price fell hard after it slashed its dividend payment earlier this year. After reporting a net loss of $1.12 billion in this year’s first quarter, Paramount Global announced that it was lowering its quarterly dividend by nearly 80% to just 5 cents per share. PARA stock plunged more than 25% on the news and has yet to recover. Year-to-date, PARA stock is down 20%, bringing its losses over the last 12 months to 40%. Over five years the stock is down 75%.
Now, Paramount Global is contending with a drawn-out strike on the part of both Hollywood writers and actors that has shut down film and TV production and left the company with a dearth of new content for its TV networks and streaming services. It’s also led the studio to delay the release of several theatrical films.
The current situation is sure to impact Paramount Global’s upcoming financial results. Could the dividend again be on the chopping block? Investors may want to sell now before they find out.
Intel (INTC)
Microchip and semiconductor company Intel (NASDAQ:INTC) is yet another prominent company that slashed its dividend payment in recent months amid a deteriorating financial situation. Intel cut its dividend by 66% to an annual payment of 50 cents per share. That’s 12.5 cents a share per quarter.
The dividend cut came as Intel reported the biggest loss in its 55-year history for this year’s first quarter. The dividend cut prompted INTC stock to fall 16%, bringing its losses over the last five years to 20%.
Intel is spending billions of dollars as it transitions its business to become a microchip foundry rather than just a chip designer. At the same time, Intel continues to lose valuable market share to other microchip and semiconductor companies, notably Advanced Micro Devices (NASDAQ:AMD).
Intel appears to have lost the trust of many Wall Street analysts. Further dividend cuts are not out of the realm of possibility should Intel’s financial problems worsen in the coming months.
On the date of publication, Joel Baglole 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.