These 5 Popular Blue Chip Stocks Could Crash Soon

These big-name stocks are commonly found in core portfolios, but they're on the verge of steep declines. If you own any of them, dump them now before you get crushed.
By Siddhi Bajaj ,

Sometimes a stock seems to have everything an investor could want: Big dividends, a solid market reputation and the promise of steady growth over the long haul. Retirement investors in particular tend to trust these stocks and hold them in their core portfolios.

But are these high-yield "blue chips" really infallible? Can they truly deliver all that magic and momentum for years to come?

We've pinpointed five popular blue chips that are on the verge of steep dives. You should sell them now, before you get burned. (They're among an entire group of highly dangerous stocks on the verge of collapse.)

KMB

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1. Kimberly-Clark Corporation (KMB) - Get Report

The maker of Huggies, Kleenex, and Depends is a consumer staples company that everyone loves.

No matter how the economy behaves, people won't stop buying health care and hygiene products. Based on this factor Kimberly-Clark has managed to sustain dividend payments for 81 consistent years -- and has also raised payments on 43 of those occasions.

While this might mean a steady income stream for those enjoying their retirement or preparing for it, the sustainability of the payments is a matter of grave concern.

First, the company may have raised dividends too soon for its own good. In a span of five years, the company's annual payment has risen over 33% to $3.52 per share, from $2.64. However, Kimberly-Clark's top-line has risen by only 3%-to-5% over the last few years and its reliance on buy-backs for bottom line growth is far from satisfactory.

The company has already paid 86% of earnings as dividends to shareholders in 2014, with the dangerous 100% figure looming close. If KMB wants to sustain and continue growing these dividends, it will have to come up with a way to boost growth, fast.

The company can't simply rely on secondary markets like China for its overall sales growth to be significant. The fact that consumers increasingly prefer to buy rival brands like Jessica Alba's Honest Diapers, and are resorting to online channels, is not helping either.

MCD

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2. McDonald's (MCD) - Get Report

McDonald's has been trying to keep its head above the water for all of 2015.

While the company's dividend aristocrat reputation strongly rests on its track record of a consecutive dividend increase since 1976, trends in America's food consumption threaten to erode its position.

Consumers are increasingly opting for tastier and healthier food options or endorsing other casual fast food establishments such as Shake Shack Inc., Sonic, Panera, or Chipotle. Its franchisees too expect the rest of the year to be grim, blaming weak marketing, bad consumer perceptions and ignorance by management.

The news isn't all bad. In the third quarter this year, global comparable-store sales rose 4% and revenues declined by 5% from the previous year. Take away currency headwinds and McDonald's would have displayed a 7% rise in revenue.

The McDonald's stock-price-jump from $102.5 to $112.5 shows promise after the encouraging third quarter earnings, but a quarterly improvement is simply not enough for the company to regain its lost position.

Low debt and an impressive balance sheet may push McDonald's boat for now, but it's going to take way more than the introduction of an all-day breakfast menu if McDonald's wants to remain on course.

Without a sustainable and growing top-line and a healthy balance sheet, continuous dividends hint the absence of an effective strategy. The burgeoning "fast casual" dining trend exemplified by competitors such as Shake Shack is on the way up, which will continue to push McDonald's ever downward.

WMT

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3. Wal-Mart Stores Inc. (WMT) - Get Report

The retail giant has witnessed a steady decline through all of 2015, losing over 30% in value since the start of the year. The 3.4% yield may look more attractive than competitors Whole Foods Market, Inc. (1.8%) and Costco Wholesale (1%), but beware of believing an illusion.

For starters, e-commerce players such as Amazon have redefined the way people shop, leaving retail majors like Wal-Mart and Costco out in the dust. In October 2015, the management revised its guidance for the next two years, sending the stock downward. The company issued a negative forward-looking forecast (a drop in earnings of 6%-to-12%) for 2016.

Wal-Mart is also plagued by the minimum-wage controversy. Adding more pressure on the bottom line is the company's decision to increase wages, not a great move for a company whose business model rests on discount pricing, and thereby, constrained margins.

The plus-3% yield aided by a robust cash flow of $10 billion-to-$16 billion annually and the reduced stock price may look enticing for the short term, but for the long-term, Wal-Mart lacks a clear and strategic growth path.

TGT

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4. Target Corp. (TGT) - Get Report

Here's another retail behemoth that might not be as golden as it seems.

Target Corp. shares quite a few similarities with its peer Wal-Mart, whether it is the plus 3% yield or a history of consistent dividend payments.

The retailer has paid dividends every year since its first payout in 1967, and the 7.7% increase in 2015 marked its 44th year of rising payments.

But the similarities don't end with the positives. Like Wal-Mart, Target is feeling the heat of online players like Amazon. Revenues from online channels for the latest quarter rose 20% year-over-year (YoY), but fell far short of the company's 30% target.

Competition has never been this fierce in organized retail, evident in Target's recent announcement of commencing Black Friday promotions five days earlier this year, in an attempt to woo customers away from its rivals.

With the big boys of traditional retail themselves facing tough times, investors are probably better off without this sector in their portfolios.

QCOM

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5. Qualcomm (QCOM) - Get Report

At a dividend yield of 3.64%, you might be tempted to pick up the semiconductor designer, if you don't own it already. The company's dividend history from 2003 also displays an uninterrupted upward trajectory.

However, if you take a look at the future prospects of the company, chances are you will think again.

Qualcomm has largely profited from owning the protocols for wireless consumer wireless communications and selling chip-sets.

However, as the industry considers next-gen Long Term Evolution, Qualcomm's plan of unifying competition under the LTE-U standard and driving new chipsets runs the risk losing its pace. The cheaper availability of Wi-Fi is another challenge that the company must overcome.

Financially, the company's top line has fallen sequentially for four quarters in a row and the bottom line has also slumped for three of these four quarters. If that isn't enough, net profits for the latest quarter was half the number reported last year for the same period.

If future possibilities seem uncertain and profitability takes a beating, it won't be long before cash-flows -- and thereby dividends -- take a hit as well.

These aren't the only stocks poised for a nasty fall. We've unearthed a group of 29 dangerous stocks that are a terrible place for your money today. In fact, using a little-known financial "health test," the stocks on this list are a failure in every category! Click here now to make sure you don't make the mistake of owning one.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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