Beware These Three Dividend Stocks Ready to Slash Their Payout

Close

Investors are in love with dividend stocks this year - and there are even more juicy yields to choose from than before.

But one thing you need to be careful to avoid is a dividend stock that boasts a huge yield, but can't sustain it.

For example, look at CenturyLink Inc. (NYSE: CTL). CTL has been a favorite dividend stock for years, but slashed its dividend by 26% in February. The move caught investors off guard. Shares plunged 23% in one day - the biggest one-day decline since at least 1980 - wiping out about $6 billion in market value. 

The stock still yields nearly 6%, but confidence in the company to maintain its payout has been damaged. 

Positive dividend actions have far outweighed negative announcements over the past few years. In 2013's first quarter, 732 companies boosted their payouts compared with 552 in the year-earlier period.

But in March, 73 U.S. companies pruned their payouts - not far off the record of 93 in December 2012.

Usually companies frame dividend cuts as necessary evils - necessary as in the cut was needed to conserve cash. Read those tea leaves and it's easy to realize that if a company needs to cut its dividend to conserve capital, it probably is not worth investing in in the first place.

The good news is investors can skirt stocks that are vulnerable to dividend reductions. We rounded up a few names that deliver tempting yields, but look like they could be on the way to cutting their payouts.

Three Dividend Stocks Headed for Lower Yield

Exelon Corp. (NYSE: EXC): In the first quarter, utilities were one of the top-performing sectors. That serves as further proof that investors love the idea of decent yields and low volatility under one umbrella.

Exelon, the Chicago-based nuclear power firm, gives investors both a yield of 6% and a beta of just 0.53.

Not to mention the stock is up nearly 18% this year and that is, quite frankly, a jaw-dropping ascent for a utilities stock in less than four months.

But investors can't ignore these issues with Exelon...

The full article is reserved for subscribers of Money Morning.
Sign up now for immediate access - it's absolutely free!

(After submitting your email address the page will refresh with the full article. You will receive a welcome email from Money Morning including the benefits of your free subscription.)