The CAPS Screen: Don't Touch These 5 Dividend Time Bombs

My Foolish colleague Ilan Moscovitz recently tapped into the collective wisdom of the Motley Fool CAPS investment community to dig up five dividend dynamos. As he cautioned at the time, even though most of the stock market's gains come from dividends, high yields aren't all gumdrops and rainbows. Shareholders of dividend-cutters Citigroup (NYSE: C  ) and Ambac Financial (NYSE: ABK  ) certainly understand that it's also important to make sure a company is healthy enough to support a large dividend if one is to avoid the next dividend implosion.

With that in mind, I used our new CAPS screening tool to pick out some high dividend payers it might be best to avoid. Below are five companies with dividend yields above 3%.

They also have:

  • Market caps greater than $5 billion.
  • One- or two-star ratings from our CAPS community.

Remember, in the first year for which we have data, one-star companies in CAPS flamed out with an average loss of 17%. Two-star companies also underperformed.

Company

Share Price

Sector

Market Cap
(in billions)

Bank of America (NYSE: BAC  )

$22.36

Financial

$99.5

General Motors (NYSE: GM  )

$9.69

Consumer Goods

$5.5

Lehman Brothers (NYSE: LEH  )

$17.30

Financial

$9.6

Merrill Lynch (NYSE: MER  )

$28.71

Financial

$28.2

Wachovia (NYSE: WB  )

$13.13

Financial

$28.4

Data from Motley Fool CAPS and Yahoo! Finance as of June 10.

Are these dividend duds? Or are they simply misunderstood? Come and join us on Motley Fool CAPS to let us know what you think. Our 110,000-strong (and counting) CAPS community wants to hear your opinion.

For more CAPS content:

Fool analyst Bryan White doesn't own any of the companies mentioned in this article. Bank of America is an Income Investor recommendation. The Fool's disclosure policy is always on the menu.


Read/Post Comments (2) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 11, 2008, at 4:21 PM, Ishortyou wrote:

    In respect to AMBAC and MBIA: they need to keep and save all the cash including stop paying dividends, deleverage AGGRESSIVELY from all their risky liabilities specially those CDS-CDO's, RMBS-ABS of uncertain value to remediate their books in all of their subsidiaries, once their book values are sound they need to reinstate their triple A rating again to write new low risk public bond insurance business. They can also open or extend a line of credit to make sure to continue operations, dissipate doubts and prevent further downgrades from rating agencies. They are already doing these, so it will take some time to deleverage their books from uncertainties and rewrite new business again. This coming back will be the best advertisement to recruit new clients.

  • Report this Comment On July 11, 2008, at 4:22 PM, Ishortyou wrote:
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