EP #199 | 10 Dividend Stocks we Never Want to Own | & Using Limit Orders, Impact of F* U money, Intel to Buy Now?
Jun 8, 2024
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Discover the 10 companies that are best avoided in your investment portfolio and why they made the list—from high debt to poor management. Dive into the buzz surrounding Roaring Kitty's GameStop losses and ASML's latest chip machine. Explore substantial dividend hikes from multiple firms and the implications of 3M's removal from the Dividend Aristocrats Index. Address listener questions about investment strategies and the volatility of dividend models, all while gaining valuable insights into the current market landscape.
The podcast emphasizes the speculative nature of investments like GameStop, warning inexperienced investors against following social media hype without proper evaluations.
ASML's strategic sale of advanced semiconductor machines to TSMC showcases its competitive advantages in maintaining pricing and profitability within the market.
The discussion highlights the challenges within the American healthcare system, questioning the acceptability of exorbitant costs and their implications for corporate profitability and dividend growth.
Deep dives
The Frenzy Surrounding GameStop
The episode highlights the ongoing volatility and cult-like following surrounding GameStop, particularly in the wake of major price fluctuations and trading strategies like options trading that exacerbate risks. Despite acknowledging its potential for explosive returns, the speakers express serious concerns about the speculative nature of investments in GameStop, particularly for inexperienced investors who may be drawn in by social media hype. They emphasize that the allure of rapid gains often distracts from sound investing fundamentals, and they stress the importance of conducting proper evaluations before committing to such volatile positions. Ultimately, they position GameStop as a prime example of the types of stocks they advise against owning, underlining their preference for more stable, dividend-oriented investments.
ASML's Monopoly in Technology
ASML's dominance in the semiconductor manufacturing space is discussed, particularly highlighting a recent sale of their advanced EUV machine to TSMC for $380 million, which showcases ASML's unique market position. The podcast details how TSMC, initially hesitant about the purchase due to the high cost, ultimately recognized the critical need for this technology to remain competitive. The speakers point out ASML's strategy of balancing customer pricing with business sustainability, demonstrating a nuanced understanding of market dynamics where they strive to maintain a beneficial relationship with clients while also ensuring their profitability. This example illustrates the significant competitive advantages that ASML holds in a market with few true alternatives.
Concerns Over U.S. Healthcare Costs
The podcast addresses the perplexing nature of the American healthcare system through the lens of UnitedHealthcare's recent dividend hike of 11.7%, linking it to the exorbitant costs faced by consumers. The speakers share a striking example of a family in Florida paying $3,000 a month in premiums, which prompts confusion over how such expenses could be deemed acceptable in a developed society. They contrast this with more affordable healthcare models found in European countries, questioning why American citizens continue to accept such high costs without advocating for systemic changes. This situation leads to contemplations on the broader implications for dividend growth and corporate profitability within industries that significantly burden consumers.
Spotlight on Irregular Dividend Companies
The discussion highlights the challenges of investing in companies with a track record of inconsistent dividend payments, exemplified by the automotive sector with Volkswagen's fluctuating dividend history. The speakers note that while Volkswagen has exhibited long-term growth in its dividend, it remains highly sensitive to economic cycles, leading to previous cuts in dividend payments. They stress the risks associated with investing in firms that have shown an inability to reliably maintain their dividends, particularly during downturns. Investors seeking stability may find such investments unsuitable, as predictability in dividend growth is a key component of their investment strategy.
Avoiding High-Risk Telecom Stocks
The episode underscores the issues plaguing telecommunications companies, particularly using AT&T as a case study of high leverage and subsequent dividend cuts. The discussion reveals how the telecom sector's inherent capital intensity and cyclical nature can deter long-term growth investors, presenting a compelling argument for avoiding such stocks. Historical dividend cuts at AT&T and other telecom giants signal significant risks associated with investments in this sector, prompting serious inquiries into their sustainability. Ultimately, the speakers advocate for a cautious approach when considering investments in telecom stocks, emphasizing the instability and potential pitfalls of dividend yields that appear deceptively high.
In Episode 199 of DividendTalk, titled "10 Stocks We Never Want to Own," we explore the companies that we believe are best avoided in any investment portfolio.
As usual, we kick off with the week's news, discussing Roaring Kitty's massive $235 million loss on GME in a single day and the buzz around ASML's $380 million chip machine set to ship to TSMC, which Intel has already started using. We then highlight recent dividend announcements, including substantial hikes from United Health, Alexandria Real Estate Equities, Essential Properties Realty Trust, and Lowe's, while noting 3M's removal from the Dividend Aristocrats Index.
Diving into the main topic, we detail why those 10 companies we never want to own make our list of stocks to avoid, citing issues ranging from financial engineering and poor management to economic sensitivity and high debt.
We also address listener questions on diverse topics such as the volatility in dividend discount models, ETF voting rights, investment strategy adjustments near retirement, and opinions on specific stocks like TR Property Investment Trust and Intel post-dividend cut.
This episode is packed with valuable insights and analysis to inspire you on your dividend growth journey.