Avoid These 7 Stocks in Retirement Like the Plague

By, Bob Ciura

Investors who are in retirement, or nearing retirement will have different needs than their younger counterparts still in the accumulation phase of their life. Retiring means losing the regular paycheck from work, and as a result, replacing that income is a key consideration. There are many stocks that appeal to retirement investors, such as quality dividend stocks like the Dividend Kings. But there are also many stocks that retirement investors should stay away from. Retirement investors should avoid the following 7 stocks.

#1: Tesla Inc. TSLA

Tesla is a blue-chip stock listed on the S&P 500 with a market cap above $600 billion. But just because Tesla is a mega-cap, does not imply a higher level of safety. Tesla still struggles with maintaining consistent profitability; the company reported a net loss of $862 million in 2019 and $976 million in 2018. 

Tesla generated a profit of $721 million in 2020, but even so, earnings on a per-share basis came to just $0.64 for the year.

With such a low level of profits, Tesla has never paid a dividend and possibly never will. And while shareholders have earned massive returns from owning Tesla, whether retirees should invest today is a different question. 

Based on Tesla’s $31 billion in 2020 revenue, the stock trades for a trailing price-to-sales ratio near 20.

#2: Netflix NFLX

Netflix is a major tech stock and a streaming giant. The company has grown its revenue at a very high rate over the past decade, as it has come to dominate the streaming industry. And while Netflix is a top growth stock and a beneficiary of the ongoing cord-cutting trend, retirees should avoid it simply due to its high volatility and lack of a dividend.

Read more: 15 European Dividend Aristocrats To Diversify Your Portfolio

#3: USA Compression Partners USAC

USA Compression Partners is an example of an MLP flashing warning signs that the high distribution may not be sustainable. USAC is one of the largest independent providers of gas compression services to the oil and gas industry, with annual revenues of $668 million in 2020.

The partnership is active in several shale plays throughout the U.S., including the Utica, Marcellus, and Permian Basin.  They focus primarily on infrastructure applications, including centralized high-volume natural gas gathering systems and processing facilities.  

The company has struggled to recover from the pandemic, which has squeezed its financial position. First-quarter revenue fell 12% year-over-year, while its distribution coverage declined to 1.03x, meaning the current payout is barely covered by distributable cash flow. If DCF declines further, the payout may be reduced.

#4: Great Elm Capital GECC

Great Elm Capital is a Business Development Company, otherwise known as a BDC. These stocks are popular among income investors because they generally have very high dividend yields. But many BDCs are highly risky due to their eroding fundamentals and lack of dividend safety.

Great Elm Capital is an example of a BDC that should be avoided. Great Elm Capital is a BDC that specializes in loan and mezzanine, middle-market investments. 

Net investment income decreased by 6% in the first quarter, a warning sign as the company can barely afford to maintain the current dividend. Furthermore, it has seen book value erode rapidly since going public in 2016.

While shares currently yield over 12%, investors should be wary of extreme high-yielding BDCs like Great Elm.

Read more: Don't Miss these 15 Dividend Kings With 50+ Years Of Dividend Growth

#5: GlaxoSmithKline GSK

International stocks are a great way for investors to gain diversification by geographic market, but not all international stocks are attractive for income investors.

Retirees should avoid GlaxoSmithKline in particular because the company has had a great deal of difficulty generating growth in recent years. GlaxoSmithKline reaffirmed its expectation that its earnings-per-share will decline by a high single-digit percentage in 2021, due to low expected growth in pharmaceuticals and vaccines.

As a result, the company is likely to have a very high dividend payout ratio, which could jeopardize its ability to maintain the dividend. GSK is relatively unappealing with so many better health care stocks for retirees such as Dividend King Johnson & Johnson (JNJ).

#6: Anheuser-Busch InBev BUD

Anheuser-Busch InBev is the largest beer company in the world. The company produces, markets and sells over 500 different beer brands around the world. Major global brands include Budweiser, Stella Artois, and Corona, generating nearly $50 billion in annual revenue.

But retirees typically want stable dividends and steady dividend growth over time, and AB-InBev is not an attractive stock for either. AB-InBev cut its dividend significantly over the past few years in an attempt to fix its balance sheet which had become bloated with debt after multiple huge acquisitions.

The company has stated that deleveraging is a priority for 2021 and beyond until a leverage ratio of 2x is attained, but AB InBev remains far from this goal with a current leverage ratio of 4.8x. With a very low dividend yield near 1% and a low likelihood of dividend growth, retirees should avoid this stock.

Read more: Get Instant Diversification With These Top 10 International ETF's

#7: Amazon.com AMZN

Amazon has been one of the best growth stocks in the entire market over the past decade—but for retirees who might want consistent portfolio income, Amazon is not an appealing stock. Amazon continues to grow its revenue at a high rate, and the company has become profitable.

In the 2021 first quarter, Amazon’s revenue increased 44% to $108.5 billion. Earnings-per-share of $15.79 more than tripled from $5.01 per share in the year-ago quarter. And yet, Amazon does not pay a dividend, as the company needs to reinvest as much cash flow as possible back into the business for growth.

Therefore, retirees could generate dividend income with other tech stocks like Apple (AAPL), Microsoft (MSFT), or Cisco (CSCO).

Read more: Don't Miss These 12 Dividend Stocks That Pay Monthly Dividends

 

This article originally appeared on The Financially Independent Millennial and was republished with permission.