Over the past several years, no type of stock has been more popular than the dividend-paying variety. Investors have been wooed by the guarantee of payouts that help secure their investments.
At the same time, however, shareholders need to realize that steep declines in the price of their shares could easily cancel out any gains they experience through dividends. Below I'm going to highlight five popular dividend stocks that have taken steep falls lately, and what their prognosis is moving forward. At the end, I'll offer you access to 11 company tickers that we believe represent excellent dividend opportunities.
Frontier is proving that even a dividend yield of 18.6% isn't enough to keep some stocks afloat. Over the past month, S&P offered up a negative outlook on this rural telecom's balance sheet.
That leaves the company in a precarious position. With a load of debt coming due in the next few years, Frontier's best shot at maintaining its fiscal health would be reducing its dividend. Over the first nine months of 2011, the company's payout has eaten up over 97% of its free cash flow.
But any cut in its dividend would likely trigger a wave of selling by investors, further lowering the company's stock, which has fallen over 24% since 2012 began. I'd say your best bet is to steer clear of this monster dividend for now.
This North American extractor of natural gas and oil has had a forgettable past couple of months. With demand for natural gas lower than expected -- based largely on unseasonably warm temperatures throughout the winter -- and production continuing, there's been a glut of supply that's caused natural gas prices to crater.
That has left this independent operator in the unenviable position of just having to wait out the interim, hoping that supply will soon level off with demand. The company's 2.3% dividend yield shouldn't be in any real danger, as just 30% of earnings are used to pay it off. Some insiders are even raising their stakes in EXCO, but I'm still staying away from this one. The stock may be down over 30% on the year, but with no end in sight to the nat gas supply glut, I think there are better places for your cash.
This oil-field services provider just reported fourth-quarter results that can be succinctly summed up in one word: terrible. Misses on revenue and earnings by wide margins have led the stock to a 19% decline since the announcement.
Some believe that this quarter was an aberration, as the company's shift toward focusing on wet gas extraction -- though it will likely bring in lower revenue than dry gas -- should improve profitability because of more favorable margins. With a 3.4% dividend yield that only eats up 16% of earnings, and a P/E of just 7, I think this is a pretty safe pick-and-axe investment in the energy field. As such, I'll be making a positive CAPScall for RPC in my All-Star profile.
This gold extractor pulled a double whammy of a faux pas in early February: lowering its estimations on the amount of gold held in reserves, and also lowering the quality of the product it's extracting from its Eritrean mines.
Though the company's 2.5% dividend yield appears safe on the surface, I'll be staying away from Nevsun on the chance of further share price depreciation.
Finally, one of America's favorite weight-loss specialists has seen its shares decline over 25% since early January. The company is currently offering an especially appetizing 6.2% dividend yield, which accounts for only 30% of free cash flow. When you combine these stats with the realization that NutriSystem's decline has occurred for no real reason, the stock looks like a pretty good buy.
For the short-term trader, I think this could offer a real opportunity. But I won't be entering this into my profile: I think the long-term societal trends will favor organic grocers and exercise programs far more than dietary programs to combat our nation's obesity problem.
Some great dividend ideas
Clearly, there's a lot to think about before diving in and buying dividend stocks that have taken a tumble lately. If investing in dividends is what keeps your portfolio humming, I suggest taking a look at our latest special free report on 11 rock-solid dividends. Our analysts have handpicked their favorite dividend stocks to help usher your retirement portfolio to prosperity. Get your copy today, absolutely free.
Fool contributor Brian Stoffel does not own positions in any company mentioned. You can follow him on Twitter at @TMFStoffel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.