Dividend stocks are a staple of many people’s portfolios. The steady quarterly or monthly income is a great piece of an overall portfolio that can help people meet key financial challenges.
But not all dividend stocks offer the same level of safety. Dividend cuts are a sad reality of the industry. And companies’ dividends enter the danger zone when they are businesses facing a structural decline in their industry’s outlook.
These three dividend stocks appear to have serious questions about the stability of their earnings and dividends going forward.
Boston Properties (BXP)
Boston Properties (NYSE:BXP) is a real-estate investment trust (REIT) focused on office properties. Traditionally, it has concentrated in top-tier office markets such as Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, DC.
However, since 2020, even these formerly bulletproof markets have come under strain. We’ve seen huge losses taken in prestigious office properties around the country. In San Francisco, for example, offices are selling for as much as 75% below pre-pandemic prices. The New York commercial real estate market, meanwhile, saw 2023 become its worst year since the 2008 Financial Crisis.
All this to say that the office market is facing a long-term structural retrenchment. With the rise of remote work and hybrid arrangements, demand for offices has dropped considerably. Even with the economy humming, office demand simply isn’t back to 2019 levels. In a recession, things could get downright grim for the sector.
Boston Properties is still paying a 6.1% dividend yield for the time being. But given the need to reposition office properties for the new economic reality, it wouldn’t be at all surprising if Boston Properties cuts its dividend to save that capital for capital expenditures on its properties. Just as the mall real estate sector became dramatically impaired in the 2010s, it seems offices are now a challenged asset class and thus no longer safe plays for dividend investors.
International Paper (IP)
International Paper (NYSE:IP) is a company which makes packaging along with pulp that goes into end products like diapers, towels, and tissues.
The company is doing its best to adapt to the times. But, as with Boston Properties, there is a general decline in demand as people spend less time in offices and route more activity through digital workflows. International Paper generated $24 billion in revenues in 2014; that has fallen to $19 billion in 2023.
Not surprisingly, profits have been stagnant given the drop in revenues. For 2024, analysts see the company bringing in $2.17 per share in earnings. That only barely will cover the firm’s budgeted $1.85 per share in dividends. While the 5.3% dividend yield may seem nice, it is only marginally covered out of earnings. In a recession, it seems quite possible that International Paper might resort to slashing its dividend.
Hasbro (HAS)
Hasbro (NYSE:HAS) is a toys and games company. It makes traditional toys and games along with digital entertainment products and its Wizards of the Coast division which creates trading cards and role-playing games.
Investors have long been circling around Hasbro, arguing the company’s assets should be worth more. In theory, could well be true. Wizards of the Coast, in particular, could be a valuable standalone asset though it is facing layoffs right now.
In any case, a series of missteps have caused Hasbro to fail to live up to its potential. The company’s revenues have slumped from $6.0 billion in 2021 to $5.0 billion in 2023 and further declines are expected in 2024.
Hasbro is on a major restructuring spree right now and is trying to turn things around. That may or may not work out. But one thing is clear: The company’s 5.7% dividend yield seems overly generous given its struggling business operations. It could be a prudent move for the company to cut the dividend to save those funds for its core operations.
On the date of publication, Ian Bezek 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.