Avoid These 2 Dangerous High-Dividend Stocks

Iconic carmaker Ford Motor (F) is a name that's synonymous with the grand-old era of automobiles while CenturyLink (CTL) is a time-honored company from a time when "telecom" meant "landlines." 

The fact is, the fundamental business matrix for both isn't as strong as it once used to be and could soon snip dividends. Ford already has a history of unkind cuts. CenturyLink is hardly any competition for larger mobile carriers. Here's why these stocks should be avoided. Both companies' shares were roughly flat in Friday trading. 

1. Ford

Ford has been going through a difficult period. The cloud over the company has as much to do with the 18% year-to-date decline in its stock price as with the overall sluggish sales of its cars.

Ford has struggled to keep pace with Japanese carmakers like Toyota Motor, Honda Motor and premium electric vehicle company Tesla Motors. These manufacturers have been rapidly changing the nature of the car business.

U.S. sales at Ford dropped roughly 12% in October. Year-to-date sales, which take a longer view, are on a downward trajectory.

In addition, operating margins in Europe, Middle East/Africa, Asia Pacific and South America in the fourth quarter were uniformly lower than in North America, where sales are dipping.

Car making and selling is undergoing a paradigm shift. These are some of the reasons why Ford's 5.2% dividend yield looks shaky.

The dividend yield (calculated as dividend as a percent of share price) for Ford is masking bigger problems, namely that the decline in Ford's stock price is what pushed the yield up.

There are several other reliable dividend creators out thereMcDonald'sJohnson & Johnson and Coca-Cola.

2. CenturyLink

CenturyLink carries a notably high yield of 9.3%, but there is big risk in the stock and the yield could fast bleed out.

CenturyLink is paying billions for acquisitions, but it has a poor track record of making money through these assets. The $34 billion purchase of Level 3 Communications, announced a few days ago, may well follow in that path. The Level 3 acquisition will add debt to the company's books. The stock is down by about 16% in the last month.

The company posted a net loss of $239 million in 2013, when it paid a dividend of $1.3 billion. In 2014, CenturyLink posted net income of $772 million, but dividends of $1.22 billion. The story is the same in 2015, where dividend payments are way ahead of net profit.

Dividends haven't grown in the last three years. CenturyLink must find a way to become more profitable to drive dividend growth. 

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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