7 Overvalued Dividend Stocks to Sell Before It’s Too Late

When it comes to dividend investing, knowing which dividend stocks to sell can be more important than knowing which dividend stocks to buy. Buying stocks for income/yield can oftentimes be like trying to pick up pennies in front of a steamroller. Given how stocks bought primarily for their dividend can tank upon news of a dividend cut/suspension, capital losses from one “dividend trap” can have a tremendous impact on the total returns from a dividend-focused portfolio. To some extent, this is due to high-yield dividend stocks becoming overvalued. With investors pricing them based on yield when they have a high payout, any reduction/elimination of the dividend typically results in a severe de-rating, as fundamentals come off the back burner.

That’s the risk at hand here with these seven dividend stocks to sell. Punching above their weight thanks to a currently-high rate of payout (5% or more), the risk of a dividend cut far outweighs potential gains.

BGS B&G Foods $14.80
BIG Big Lots $10.52
CCOI Cogent Communications $61.17
FAT FAT Brands $7.22
PETS Petmed Express $16.41
TDS Telephone & Data Systems $9.92
VIA Via Renewables $21.03

B&G Foods (BGS)

little girl holding a stock chart with athumbs down. stocks to avoid

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B&G Foods (NYSE:BGS) may not be a household name, yet its portfolio of packaged and processed food brands are well-known. B&G’s brands include baking products such as Clabber Girl and Crisco, condiments like Ortega taco sauce, and seasonings like Mrs. Dash.

Amongst investors, BGS stock may be best known for its high-yield dividend. Shares currently sport a forward yield of 5.08%. However, with its payout ratio (dividends as a percentage of earnings) coming in at 144.2%, this payout does not appear sustainable.

Even as B&G has already slashed its quarterly payout last year, from 47.5 cents to 19 cents, another trimming may be in store. A well-received quarterly earnings report has provided BGS, hammered during 2022, a bit of a boost recently. If you already hold this poor-performing dividend stock, now may be the time to cash out.

Big Lots (BIG)

a frustrated man with a white board behind him that features a black downward arrow

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If one were to rank the dividend stocks to sell ahead of a likely dividend suspension, Big Lots (NYSE:BIG) would be at or near the top of that list. Shares in the big box retailer may be down by nearly 71% over the past 12 months, but some investors may still be buying it for its super-high dividend yield.

Currently, the BIG stock offers a forward yield of 10.82%. However, with the company reporting a net loss of $7.30 per share, and expected to stay in the red through the current fiscal year (ending Jan. 2024) and the next, it’s highly questionable whether this high rate of payout will continue for long. Although it may seem as if the dividend-cut risk is already priced-in, shares would likely experience some sort of decline upon a dividend-cut announcement. With this, consider it wise to simply sell/stay away from BIG.

Cogent Communications (CCOI)

earnings

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Last July, I argued that Cogent Communications (NASDAQ:CCOI) was one of the top dividend stocks to sell. All thanks to the fact that this telecom company was paying out dividends in excess of its operating cash flow minus capital expenditures. At the time, these payouts did not seem sustainable. Flashing forward to today, not only has CCOI continued to pay high dividends; its quarterly payout has continued to increase. CCOI stock is also up slightly compared to where shares were trading when I first went bearish on shares.

Nevertheless, you may not want to wager that Cogent’s high payout gambit continues indefinitely. The company’s operating cash flow has largely stayed the same in recent quarters, as have its capital expenditure requirements. Likely a key factor in propping up the stock, if it becomes necessary to slash the dividend, it could result in a big sell-off.

FAT Brands (FAT)

a keyboard with a greet enter key marked sell, representing overvalued stocks to sell

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The corporate name of FAT Brands (NASDAQ:FAT) is in reference to one of the main restaurant franchises in its portfolio, Fatburger. However, you can argue as well that this name is also apt in describing FAT’s dividend policy.

The FAT stock pays investors with quarterly dividends totaling 56 cents per share annually. At current prices, this gives FAT a hefty forward dividend yield of 7.66%. Yet besides the fact that FAT has dropped in price by a greater amount (nearly 16%) over the past twelve months, this yield may not be sustainable. It’s not merely a matter of FAT Brands paying out all of its profits to shareholders in the form of dividends. Generating negative operating cash flow, FAT has been essentially borrowing in order to make these payouts. With the forthcoming exit of its CEO (who is under federal investigation), there’s even more reason to steer clear.

Petmed Express (PETS)

sell written on a chalkboard representing overvalued stocks to sell

Source: Shutterstock

Petmed Express (NASDAQ:PETS) may still seem to some as a high-yield dividend stock worthy of a buy. In large part, due to the pet pharmacy operator’s 13-year track record of dividend growth. Over the past five years, PETS has raised its dividend by an average of 7.14% annually. But it does not matter how many times you say to yourself, “a raised dividend is a safe dividend;” with PETS stock, dividend trap risk runs high. As with Cogent, this is another example of a company paying out all available operating cash flow out as dividends.

With the company reporting revenue and adjusted EBITDA declines during the preceding quarter, operating results do not seem to be keeping up with dividend growth. PetMeds’ poor fiscal performance may also signal that its partnership with telehealth company Vester isn’t doing much to move the overall needle growth-wise.

Telephone & Data Systems (TDS)

a businessman with his thumb facing down

Source: Shutterstock

Telephone & Data Systems (NYSE:TDS) is a regional telecom company, but its main asset and cash cow is its 84% stake in wireless provider United States Cellular (NYSE:USM).

While USM stock does not pay a dividend, TDS stock offers a high yield to its investors. Shares today sport a forward yield of 7.21%. Not only that, TDS is technically within two years of achieving “dividend king” status, as it has raised its payout 48 years in a row. Although this may make it seem like one of the safer high-yielders, a closer look suggests otherwise.

As a Seeking Alpha commentator recently argued, TDS’s wireless unit is struggling to compete with its larger rivals. Already paying out dividends well in excess of its earnings, this would be “king” could soon be out of the running for the crown. This makes TDS one of the dividend stocks to sell.

Via Renewables (VIA)

Source: Shutterstock

While Via Renewables (NASDAQ:VIA) may sound like a solar or hydrogen energy startup, in actuality this company is merely an independent retail energy company that used to go by the name of Spark Energy.

While the company has not yet released official results, Via’s preliminary net income figure for the full year 2022 ($11.2 million), while better than last year’s figure ($5.2 million) is still well below the $29.8 million in net income reported two years back. Despite its worsening fiscal performance, VIA has maintained its dividend.

With its split-adjusted drop in price over the past year, this has resulted in VIA stock becoming a high-yielder, with a forward yield of around 13.7%. Although the company has not signaled it plans to reduce/eliminate this payout anytime soon, if poor operating results persist, it appears very likely that this will happen.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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What to know about investing in companies that empower women

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As women in America struggle to get equal pay and rise up the ladder, companies that empower and promote female workers are being rewarded by impact investors.

Known as gender lens or gender equity investing, the idea is to invest for financial return, while promoting gender diversity. The theme is becoming more popular — although it still represents a small slice of the investment pie, according to Morningstar.

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Assets in U.S. gender equity funds have doubled over the trailing three years to $1.3 billion, as of the end of February, Morningstar found. Yet those funds represent less than 0.01% of total equity fund assets in the United States, according to the firm.

Funds focusing on gender equality

Ticker Name Fund size ($) Expense Ratio YTD total return 3-year average annual total return
FWOZX Fidelity Advisor Women’s Leadership Z 131,202,145 0.69% 3.24% 19.83%
SHE SPDR MSCI USA Gender Diversity ETF 195,412,450 0.20% 2.09% 14.68%
FDWM Fidelity Women’s Leadership ETF 4,924,881 0.59% 3.37% N/A
PXWEX Impax Ellevate Global Women’s Ldr Inv 805,158,928 0.76% 2.35% 14.44%
GWILX Glenmede Women in Leadership US Eq 21,070,997 0.85% 1.40% 19.70%
WCEO Hypatia Women CEO ETF 1,563,267 0.85% N/A N/A
EQUL IQ Engender Equality ETF 5,388,005 0.45% 0.37% N/A
WOMN Impact Shares YWCA Women’s Empwrmt ETF 33,829,448 0.75% 3.49% 24.42%
FWOAX Fidelity Advisor Women’s Leadership A 131,202,145 1.10% 3.10% 19.34%

Source: Morningstar

But what exactly qualifies as gender lens investing, does it correlate to returns and can it make an impact?

‘Isolate that female factor, there will be alpha.’

Patricia Lizarraga first noticed what she calls “the female factor” about 15 years ago when she was working in investment banking. Her women CEO and CFO clients were getting tremendous results, she said.

These days she’s the managing partner of Hypatia Capital. In January, the asset management firm launched the Hypatia Women CEO exchange-traded fund (WCEO). The fund invests in all publicly-traded U.S. companies that have women CEOs, from small cap to mega cap. It’s down about 1% from its Jan. 9 debut, as of Thursday’s close. It has an expense ratio of 0.85%.

The fund is in the early stages and has about $1.5 million in net assets. It is sector weighted, which means the fewer women CEOs in any given sector, the more shares the fund has in the companies that do have female leaders. One of its top holdings is Occidental Petroleum, helmed by CEO Vicki Hollub, whom Lizarraga called “a visionary.”

“Women today outperform as CEOs because it is so much harder for a woman to become a CEO,” Lizarraga said. “The woman who makes it to the CEO spot has to jump through more hoops. If you can isolate that ‘female factor,’ there will be alpha.”

Hypatia Women CEO ETF’s top holdings

Ticker Name % of net assets
OIS Oil States International 2.11
INSW International Seaways 2.08
OXY Occidental Petroleum 2.08
JXN Jackson Financial 1.22
PGR Progressive Corp. 1.21
LBC Luther Burbank Corp 1.21
GBX Greenbrier Cos 1.21
BXMT Blackstone Mortgage Trust 1.20
BEN Franklin Resources 1.20
EGBN Eagle Bancorp 1.18
C Citigroup 1.18

Source: Hypathia Capital, as of 3/1/2023

In fact, research shows that gender diversity boosts a company’s financial performance. S&P 500 companies that have more than 25% of female executives have a higher subsequent one-year return on equity than the rest of those in the index, according to research by Bank of America. The same goes for those who have more than one-third of women on the board, the firm found.

In addition, companies in the top quartile of gender diversity on executive teams were 25% more likely to experience above-average profitability than peer companies in the fourth quartile, a 2019 analysis by McKinsey & Company found.

Tracking the gender theme

Yet gender lens investing can be more than just investing in companies with female chief executives.

Funds may screen for a percentage of women on the board of directors and women in executive management roles, said Kenneth Lamont, senior researcher at Morningstar. They may also look at hiring, retention and promotion figures for women within a given company and gender pay gap data, if available.

“Every provider is going to give you a slightly different approach,” he said. “There is no absolute correct approach to tracking the gender theme.”

Some providers use research from data provider Equileap, which focuses on gender equality, to help determine holdings. The Amsterdam-based firm researches and ranks 4,000 public companies around the globe using 19 criteria, including the gender balance of the workforce, as well as pay gaps, career training, recruitment and female-friendly policies.

Women in leadership matters, but we need a more robust scorecard to assess gender equity.

Julia Fish

vice president at Glenmede

One of those who use Equileap data is Glenmede Investment Management, whose Women in Leadership U.S. Equity Portfolio (GWILX) invests in large-cap companies with women in significant roles and tilts toward those that exhibit stronger gender equality policies and practices. It has about $21.4 million in assets under management, according to Morningstar, and it has an expense ratio of 0.85%.

“Women in leadership matters, but we need a more robust scorecard to assess gender equity,” said Julia Fish, vice president of Glenmede Trust’s sustainable and impact investing team.

Glenmede Women in Leadership’s top holdings

Ticker Name % of net assets
MPC Marathon Petroleum 2.82
DGX Quest Diagnostics 2.81
IPG Interpublic Group of Companies 2.78
SNPS Synopsys 2.62
BIIB Biogen 2.53
MRK Merck & Co. 2.49
ULTA Ulta Beauty 2.45
GD General Dynamics 2.38
BKNG Booking Holdings 2.37
DBX Dropbox 2.35

Source: Glenmede, as of 12/31/2022

Glenmede Investment Management analyzed Equileap data and found on a sector-neutral basis, companies in the top quintile of gender balance in leadership and workforce experienced an average greater return and less risk than companies in the bottom quintile.

Yet those extra metrics on gender equity matter. Those in the top quintile of other proxies for gender equity — including pay equity, training and career development, access to benefits and diverse supply chains — also experienced greater returns and lower risk than the bottom quintile, the firm found.

Making an impact

The people who run these funds believe the investments can make an impact.

“What investors should also look for is the existence of shareholder engagement within these public market strategies — so the ability of a public market investor to use their shares to ask the company to go farther across environmental, social and governance features, but especially on gender-related issues,” Fish said.

It’s something activist investors have been doing, to some success. In 2018, Citigroup became the first big U.S. bank to agree to publish statistically adjusted equal pay for equal work numbers after Arjuna Capital’s Natasha Lamb pushed for it. The result was an increase in compensation for women and minority workers to bridge the gap.

For New York Life Investments, putting money toward fixing the gender gap is part of its mission. The firm’s IQ Engender Equality ETF (EQUL) donates a percentage of its management fee to Girls Who Code, a nonprofit that aims to boost the number of women in computer science. The fund is just over a year old, so while it grows assets, it is also augmenting its donations to the organization with additional contributions, said Wendy Wong, head of sustainable investment partnerships at New York Life Investments. EQUL has an expense ratio of 0.45%.

“They are trying to close the gender gap in technology. The pipeline isn’t growing as much as it should,” Wong said. “By not having a pipeline of women going into technology, that has really broad implications across everything.”

Don’t forget fundamentals

Those interested in investing in companies that promote and empower women should be cognizant of what holdings are in the fund and how companies are screened. Also, be sure to understand what fees are charged.

“A good story, or even a good moral story in some cases, shouldn’t blind you to the core fundamentals of investing,” Morningstar’s Lamont said.

Be aware of any biases that may exist with the funds. For instance, when tech stocks have done well, gender funds have tended to lag, he said. That’s because the global funds, generally, are underweight tech since those companies don’t tend to do well with diversity, Lamont said.

“Depending on how the fund that you’re looking at is built, it may have really quite explicit biases in it or risk factors that you should really understand before you invest,” he said.

Lastly, understand that more may be at play than gender diversity when it comes to returns, he said.

“I wouldn’t take all of the claims that are made about the performance benefits of having an extra female director on the board as gospel,” Lamont said. “If you believe in that, that’s great. But be prepared for that not quite materializing in the way you might expect.”

—CNBC’s Michael Bloom contributed reporting

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Stocks moving big after hours: SCS, COIN, KBH

All Coinbase Japan customers will have until Feb. 16 to withdraw their fiat and crypto holdings, the company said in a blog post.

Jakub Porzycki | Nurphoto | Getty Images

Check out the companies making headlines in extended trading.

Steelcase — Shares of the office furniture company jumped nearly 6% on Wednesday evening following a strong earnings report for its most recent quarter. Both adjusted earnings per share and revenue were higher than analysts estimated, according to FactSet. Steelcase also issued guidance for the current quarter that was higher than Wall Street’s projections.

MillerKnoll — MillerKnoll, another furniture company, saw shares decline 3% after hours. Earnings and revenue guidance were weaker than analysts anticipated, according to FactSet. The company posted stronger-than-expected adjusted earnings per share for the most recent quarter.

KB Home — Shares of the home retailer rose 2.7% after the company reported better than expected financial results. KB Home posted earnings of $1.45 per share on revenue of $1.38 billion for its fiscal first quarter. Analysts were calling for earnings of $1.15 per share on revenue of $1.31 billion, according to Refinitiv. The company also announced a $500 million buyback program.

Coinbase — Shares of the crypto services company dropped about 10% after the Securities and Exchange Commission issued it a Wells notice, warning the exchange that it identified potential violations of U.S. securities law.

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Why Are Stocks Down? | InvestorPlace

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After a rollercoaster day, stocks plummeted heading into the market close after a controversial Federal Reserve rate hike announcement. Indeed, the central bank opted to raise rates once again this afternoon. This time, the Fed went with a comparably hawkish 25 basis point hike.

The Fed was faced with perhaps its most difficult decision today. Stuck between a rock and a hard place, it had to choose between pausing rate hikes in the face of an increasingly uncertain banking crisis or keeping up the pressure, likely welcoming public and political backlash.

Frankly, it’s still unclear if the Fed chose correctly. While equity markets enjoyed a bit of daylight after the Fed laid expectations for an impending conclusion to its current rate hike cycle, it seems to have been all for nought. Stocks sunk heading to the bell.

Investors may have been temporarily charmed by the notable tone shift in the Federal Open Market Committee’s (FOMC) statement. The committee removed “ongoing increases” from its language, leaving some analysts expecting a more abrupt end to the rate hikes than previously thought.

Why Are Stocks Down Today?

The S&P 500, Dow 30 and Nasdaq Composite are all well in the red following the ninth rate hike decision this cycle. Indeed, all three are down about 1.6% after trending in the green just hours ago.

While the 25 basis point hike was largely projected by analysts, the Fed’s comments have investors split. Per the Fed statement:

“The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

Following the rate hike, the federal funds rate will hover in a new range between 4.75% and 5%, the highest level since October 2007.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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3 Cannabis Stock Bargains to Grab Before More States Go Green

If you’re looking for cannabis stock bargains, you may need a healthy dose of patience. Canadian portfolio manager Larry Berman of ETF Capital Management appeared on BNN Bloomberg in early March to discuss cannabis stocks. Unfortunately, he believes they’re going nowhere fast. 

Cantech Letter reported that, according to Berman, “The explosive moves that we saw in the marijuana names as [U.S. President Joe] Biden was taking over the White House and there was a lot of speculation about legalizing and banking reform in the U.S., that just hasn’t come.”

Let’s face it, Berman’s right. The cannabis industry remains stuck in the mud, unable to get any momentum on either side of the border. In early March, Oklahoma citizens voted to reject the legalization of adult-use cannabis. It’s not a panacea right now.

The portfolio manager does believe cannabis stocks ultimately will go on a run, but not likely until closer to the next presidential election in November 2024. Until then, Berman suggests investors nibble on the cannabis stocks they like in preparation for an eventual rally. 

If you’re nibbling, here are three cannabis stock bargains to sock away for a future run.

IIPR Innovative Industrial Properties  $75.19
TCNNF Trulieve Cannabis $5.94
SMG Scotts Miracle-Gro $70.56

Innovative Industrial Properties (IIPR)

Innovative Industrial Properties (NYSE:IIPR) stock has lost more than 25% year to date and nearly 60% over the past year. As one of the leading owners of industrial real estate leased to state-licensed cannabis operators, it’s knee-deep in the marijuana business. It owned 110 properties at the end of December, providing 7 million square feet of rentable square with an additional 1.6 million square feet under development. 

Innovative Industrial Properties is a very specialized real estate investment trust (REIT). It requires a good deal of scientific and regulatory knowledge to operate these kinds of properties across 19 states. That’s a good thing, as it provides a moat of sorts.

However, given the nature of the industry, it exposes itself to increased scrutiny from regulators, investors, etc. In April 2022, IIPR faced the wrath of short-seller Blue Orca Capital. It argued at the time that the REIT’s portfolio of properties had degraded in value.

Recently, a federal lawsuit was filed in Maryland by a shareholder who accused management of breaching their fiduciary duty regarding its Kings Garden sale-leaseback transaction in 2019. The suit claims management should have known that Kings Garden was a Ponzi scheme. Not surprisingly, the two situations are related. While this could certainly be a nuisance suit, it’s something to keep an eye on.

In 2022, IIPR generated $276.4 million in revenue, 35% higher than a year earlier, with adjusted funds from operations (AFFO) of $233.7 million, 34% higher than in 2021. In the fourth quarter, it paid out 85% of its AFFO in dividends. For all of 2022, it paid out $7.10 in dividends, 24% higher than a year earlier.

Earlier this month, the REIT declared a first-quarter dividend of $1.80 per share, with an ex-dividend date of March 30. IIPR currently yields 9.1% and trades at 9 times its 2022 AFFO.

Trulieve Cannabis (TCNNF)

The second name on my list of cannabis stock bargains is Trulieve Cannabis (OTCMKTS:TCNNF), a Florida-based multi-state operator. It has more than 7,600 employees across its vertically integrated business. As of the end of 2022, Trulieve had 181 dispensaries and 21 cultivation and processing facilities in 11 states, with the highest concentrations in Florida, Arizona and Pennsylvania. 

The company’s 2022 revenue of $1.2 billion was 32% higher than a year earlier. In addition, while Trulieve generated an adjusted net loss of $30 million last year, its non-GAAP adjusted EBITDA was $400 million. This was $15 million higher than a year earlier and accounted for 32% of its sales.

“Trulieve has grown to surpass $1.2 billion in revenue in less than seven years, a notable milestone and a testament to the agility of our team,” said Chief Executive Officer (CEO) Kim Rivers. “Our success is the culmination of thoughtful intention, superb execution, and best in class capabilities for rapid growth.”

Based on an enterprise value of $2.08 billion, Trulieve is valued at 5.2 times adjusted EBITDA.   

Scotts Miracle-Gro (SMG)

If you exclude Scotts Miracle-Gro’s (NYSE:SMG) Hawthorne Gardening business from its financial statements, the company’s doing just fine. But, unfortunately, the firm’s big bet on cannabis — Hawthorne provides nutrients, lighting and other products required to grow crops indoors and hydroponically — is taking longer to materialize than hoped, and that’s been a major strain on the stock. SMG is down 72% from its April 2021 high above $250. However, shares have rebounded in 2023, up nearly 47%. 

In February, the company reported its latest quarterly results. Management has implemented Project Springboard to find annual savings of $185 million while increasing its ability to take advantage of opportunities, including getting Hawthorne back to profitability. 

As I said, the company’s U.S. consumer business, which accounts for 70% of Scotts Miracle-Gro’s overall revenue, continues to perform well. For example, in fiscal Q1 2023, revenue for the segment grew 8% year over year, while profits increased 193%. Yet due to Hawthorne, the company’s overall sales fell 7% in the first quarter, with an adjusted net loss of $56.4 million, up from a $48.6 million loss a year earlier. 

“While Hawthorne continues to manage through a challenging market, we are committed to returning the business to profitability by the end of this fiscal year,” CEO Jim Hagedorn said.

SMG stock trades at 1.04 times sales compared to a five-year average price-to-sales (P/S) multiple of 1.8. 

Long term, you won’t go wrong with garden care products. And positive developments with Hawthorne or in the cannabis industry could provide an upside catalyst for shares.     

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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7 Large-Cap AI Stocks to Avoid Like the Plague

Many institutional and retail investors and traders often embrace fads for relatively short amounts of time. In other words, many entities will buy stocks within a “hot” category for six months to a year. Then they will rapidly sell the same equities as the Street becomes less enamored with the sector.

In just the last two years, SPAC stocks, electric-vehicle stocks, housing stocks, solar stocks, and metaverse stocks have gone through this type of “boom-and-bust” cycle. Therefore, with AI stocks currently in a “boom” phase, it’s crucial to identify large-cap AI stocks to avoid before the sector inevitably reaches the “bust” portion of the cycle.

Of course, unprofitable companies with very high valuations and companies facing tough competition will be particularly vulnerable to the looming downturn of AI stocks.

In light of those points, here are seven large-cap AI stocks to avoid like the plague.

Meta (META)

Shunned by the Street for the last two years, Meta (NASDAQ:META) has recently become a Street darling thanks to its embrace of AI, its decision to, despite its name, radically cut its spending on the metaverse and the possibility that one of its key competitors, TikTok, will be banned in the U.S.

But, as I explained in the introduction to this column, the Street, following its usual pattern, will certainly become less thrilled by AI within six months to a year from now.

And while Meta’s spending cuts are pleasing investors for now, that sugar high is unlikely to last as investors realize that Facebook’s owner is still grappling with tough competition for users from Snap (NYSE:SNAP) and TikTok, while it’s continuing to fight powerful competitors, including Alphabet (NASDAQ:GOOG, GOOGL), Amazon (NASDAQ:AMZN), and Roku (NASDAQ:ROKU), for ad dollars. Moreover, as I’ve noted, I don’t expect the metaverse, which has been around for over 20 years and has not captured many adult users during all those years, to ever come close to meeting the elevated expectations of Meta CEO Mark Zuckerberg.

As far as TikTok is concerned, I would be very surprised if Washington, ahead of a very important election in 2024, decides to ban TikTok, which has become extremely popular with many young Americans.

Palantir (PLTR)

Palantir (NYSE:PLTR) does widely use AI. However, I have long maintained that I do not see evidence that Palantir’s AI tools are superior to its competitors. While researching this column, I saw no evidence that this situation has changed.

Moreover, some data points from the company’s fourth-quarter results indicate that, despite businesses and governments’ increased embrace of AI in recent months, Palantir’s growth is slowing a great deal.

For example, in Q4, the company’s U.S. revenue increased just 1.7% versus the previous quarter to $302 million. And its overall top-line growth slowed to 18% year-over-year in Q4, down from 22% in Q3.

During its Q4 earnings call, Palantir’s executives sounded very excited that, after nearly 20 years of existence, the company generated its first quarterly profit, as it reported a Q4 net income of $31 million or 1 cent per share.

However, its operations still generated an $18 million loss, with its operating margin at a discouraging -4%. Its shallow margin proves that the company’s AI technology is nothing special. That’s because if Palantir’s technology was very advanced, it could charge high prices to increase its operating margins to more impressive levels.

Alibaba (BABA)

With Alibaba (NYSE:BABA) saying that it’s “testing an artificial intelligence-powered chatbot internally,” some investors might see the Chinese e-commerce giant as an attractive AI play.

But BABA’s fourth-quarter results indicate that its two largest businesses by revenue–China e-commerce and Alibaba Cloud — are performing quite poorly. Specifically, the revenue of its China-e-commerce business fell 1% year-over-year in Q4, while its cloud business generated a loss of 1.5 billion Chinese yuan, or $218 million.

Conversely, the e-commerce revenue of one of Alibaba’s leading competitors in China, JD.com (NASDAQ:JD), increased by 3.5% last quarter. And it’s a very bad sign for BABA that, well over a decade since it launched its cloud business, the unit is still bleeding tons of red ink.

Meanwhile, in 2021 and 2022, BABA was a frequent target of China’s ruling Communist Party after the e-commerce giant’s founder, Jack Ma, harshly criticized the country’s financial system. Although there have been signs that Beijing is becoming less punitive towards the nation’s tech firms, some say that Chinese authorities may not be ready to become completely friendly towards the sector. That’s because the country has obtained “golden shares” in a number of prominent Chinese tech names, including a key BABA subsidiary.

CNN explained that these shares “allow government officials to be directly involved in [tech firms’] businesses, including having a say in the content they provide to hundreds of millions of people.”

Beijing’s decision to take “golden shares” in BABA’s subsidiary suggests that the government may, at a moment’s notice, resume taking punitive actions against BABA, causing the conglomerate’s shares to tumble.

Coinbase (COIN)

Coinbase (NASDAQ:COIN) says that it’s a prolific user of AI. “AI has been in the DNA of the company from the very beginning,” the crypto exchange’s director of data science, Soups Ranjan, told Amazon.

According to Ranjan, COIN uses AI to prevent fraud. “One of the biggest risk factors that a cryptocurrency exchange must get right is fraud, and machine learning forms the linchpin of our anti-fraud system.” the executive explained.

But, despite crypto’s recent rebound amid the problems suffered by several banks in March, most cryptos are still very far below their highs. And cryptos proved worthless as a hedge against inflation in 2021 and 2022, destroying one of crypto bulls’ main arguments. Given these points, I believe that most investors have lost confidence in cryptos.

Supporting the latter contention, there were $80 billion of assets on COIN’s platform at the end of Q4, down from $278 billion at the end of 2021.

Meanwhile, the federal government is quite obviously targeting crypto in general and COIN in particular. For example, the Securities and Exchange Commission is demanding that crypto exchanges, including Coinbase, register as securities exchanges, but COIN has refused to do so.

Additionally, the agency has taken steps to ban “crypto staking,” which has become a key source of revenue for Coinbase. Further, the Federal Reserve, the FDIC, and the Controller of the Currency have adamantly tried to prevent banks from funding “crypto-asset-related entities.”

Very few people or organizations can fight Washington and emerge victorious.

ARK Autonomous Technology & Robotics ETF (ARKQ)

One of Cathie Wood’s ETFs, the ARK Autonomous Technology & Robotics ETF (NYSEARCA:ARKQ) reports that it “focuses on energy, automation and manufacturing, materials, artificial intelligence, and autonomous transportation.”

Since I began following Wood in 2021, I’ve been very unimpressed with her stock picks. I think she tends to pick a rather high percentage of names with poor prospects, excessive, unwarranted valuations, and/or extremely tough competition. Among her picks of the last two years that had one or more of those characteristics have been Coinbase, Virgin Galactic (NYSE:SPCE), Palantir, Teladoc (NYSE:TDOC), Skillz (NYSE:SKLZ), and Peloton (NASDAQ:PTON).

Given the high number of very bad picks that Wood has made in the past, I recommend avoiding all of her ETFs.

Moreover, I’m not enamored with ARKQ’s second and third-largest holdings as of March 20. The sales of the ETF’s second-largest holding, robotics maker UIPath (NYSE:PATH), rose just 6.5% year-over-year last quarter, while it generated a net loss of $27.7 million, but its trailing price-sales ratio is a very large eight.

The sales of the fund’s third-largest holding, Kratos Defense & Security (NASDAQ:KTOS), climbed a very good 17% year-over-year, but its operating income dropped to $4.6 million from $10.2 million. Additionally, if the Ukraine-Russia War ends this year, KTOS stock will likely take a big hit.

Intuitive Surgical (ISRG)

Intuitive Surgical (NASDAQ:ISRG) is utilizing AI to enhance the performance of its surgical robots.

But ISRG, facing an array of small, private challengers for years since the Food and Drug Administration approved its first surgical robots in 2000, had no serious competition.

But much more ominously, Intuitive Surgical is going head-to-head with one of the world’s largest medical-device makers, Medtronic (NYSE:MDT). The latter company’s robotic-surgery tool, Hugo, was approved by the EU in October 2021, and MDT started trials of Hugo in the U.S. in Q3 of 2022.

“We expect our surgical robotics business to become a meaningful growth driver for Medtronic,” the company’s CEO stated last month, adding that the revenue from Hugo is trending higher.

Perhaps indicating that Intuitive Surgical is already beginning to be hurt by the competition, the company delivered 369 “surgical systems” last quarter, down from 385 during the same period a year earlier. The decline occurred despite the reduced, negative impact of the coronavirus previous quarter versus the same period a year earlier in America and Europe.

ISRG stock has an elevated forward price-earnings ratio of 42x.

Snowflake (SNOW)

Snowflake (NYSE:SNOW) has developed a “data platform” that enables companies to access all of their data from one location. According to SNOW, “Snowflake’s platform was designed from the ground up to support machine learning and AI-driven data science applications.”

SNOW’s CEO, Frank Slootman, has a sterling resume. He was CEO of ServiceNow (NYSE:NOW) from 2011 to 2017 and helped build that company, which automates IT processes, into a formidable giant.

But SNOW’s financial results and its 2023 guidance do not justify its current, gigantic valuation.

On the positive side, the company’s product revenue jumped 54% year-over-year last quarter. However, its operating margin, excluding certain items, was just 6%.

For all of last year, SNOW’s product revenue soared 70%. But for this year, the company expects the metric’s growth to slow radically to just 40%.

Moreover, SNOW expects its operating margin for all of this year to remain a very anemic 6%.

Together, this data suggests either that the company’s market is already starting to be saturated or it’s encountering growing competition, forcing it to charge relatively low prices and causing its growth to decelerate sharply.

Turning to the huge valuation of SNOW stock, the shares are changing hands at a forward price-earnings ratio of 222, with a huge price-sales ratio of 15x.

A company should have all-around great metrics and accelerating growth at that valuation. SNOW does not have either characteristic.

As of the date of publication, Larry Ramer was short COIN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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3 Dividend-Paying Growth Stocks to Buy and Hold for the Long Term

Dividend-paying growth stocks did not get much attention in the last few months. You can blame the general macroeconomic environment for this.

Rising inflation and a hawkish Fed is not the recipe for success. However, the situation also allows the savvy investor to pick up dividend-paying growth stocks at a discount.

And why not? One of the best ways to plan for volatility is to load up your portfolio with dividend-paying growth stocks.

Famed investor John D. Rockefeller once said, “The only thing that gives me pleasure is to see my dividend coming in.”

When it comes to dividend growth stocks, there are two ways to approach them. The first is to look at companies with a track record of hiking their annual dividend payout, like the Dividend Aristocrats.

These are S&P 500 stocks that have raised their dividends yearly for at least 25 consecutive years and are considered some of the best dividend stocks on Wall Street.

The second way is to consider companies currently growing their dividends and top and bottom lines and view them as dividend and growth stocks.

From a company perspective, giving out dividends is always great. For one thing, it tells investors the company cares and is willing to share profits. It also shows the company is thriving. Otherwise, it wouldn’t be giving out cash in the first place!

Here are three names worth considering for investors seeking stocks. They offer long-term income and capital appreciation.

Ticker Company Price
MRO Marathon Oil $22.01
EXR Extra Space Storage $159.96
EQIX Equinix $702.58

Marathon Oil (MRO)

Marathon Oil gas station carport on sunny day with blue sky background

Source: Jonathan Weiss/shutterstock.com

Marathon Oil (NYSE:MRO) is among the energy companies expanding through mergers and acquisitions.

In November, MRO said it was purchasing Ensign Natural Resources’ Eagle Ford assets in a transaction worth $3.0 billion. This move doubles the company’s stake in the Eagle Ford basin. And purchasing these assets is expected to result in immediate earnings gains while creating future development opportunities.

The press release highlights that the transaction said the deal is “immediately and significantly accretive” to Marathon Oil, suggesting it will significantly hike both operating cash flow and FCF.

Specifically, the acquisition is projected to cause a 17% rise in the company’s operating cash flow for 2023 while also resulting in a 15% increase in free cash flow.

From the dividend point of view, things cannot get better. Regarding its ranking among the top dividend growth stocks, Marathon Oil announced a rise of 11% in its quarterly payout at the end of January.

CEO Lee Tillman stated in the company’s press release that this is the seventh increase to their base dividend over the past two years. According to the executive, resulting in a total increase of more than 230% since the beginning of 2021.

Now, I know what you might be thinking. Does the energy giant have what it takes to cover the dividend? You need not worry on that end. Last year, Marathon generated approximately $4 billion of free cash flow, which handsomely covers its dividend. And with a payout ratio of 7.80%, there is plenty of room to grow the dividend.

Extra Space Storage (EXR)

Extra Space Storage (EXR) facility exterior and trademark logo.

Source: Ken Wolter / Shutterstock.com

Extra Space Storage (NYSE:EXR), changing hands for under $158, is a Utah-based real estate investment trust. It holds a portfolio of over 2000 self-storage properties spread across 175 million square feet in the U.S.

To improve its financial metrics, Extra Space Storage has notable expansion plans. In September 2022, for example, the REIT purchased Storage Express for $590 million. Storage Express currently oversees 106 units and eight land parcels across Indiana, Illinois, Kentucky, and Ohio.

Moreover, Extra Space Storage acquired 186 locations in 2022, including the acquisition and joint venture investment, for a total investment of $1.47 billion.

In addition, Extra Space Storage is one of the top dividend growth stocks in the market. Presently, the REIT provides a quarterly dividend of $1.62 per share, following an 8% hike earlier this year. Its annualized payout of $6.48 per share translates into an attractive dividend yield of 4.12%.

Equinix (EQIX)

Image of a well-lit data center

Source: Shutterstock

Equinix (NASDAQ:EQIX), a pure-play data center real estate investment trust, is one of the few remaining leaders in the industry after significant consolidation. As a data center REIT, Equinix leases enterprise server space and operates the server farms within its vast warehouse-like facilities.

Equinix has achieved 80 consecutive quarters of revenue growth and operates over 240 data centers across the globe. In its latest reported quarter, AFFO grew by 11% year-on-year and on a normalized, constant currency basis, reaching $2.714 billion. Shareholders also saw a 9% hike year-on-year or an 11% increase when normalized and adjusted for inflation.

Roughly 36% of its clients are significantly involved in cloud computing, including major services such as Amazon Web Services, Microsoft Azure, and Google Cloud.

Additionally, Equinix is a stable dividend payer with an attractive yield. In reporting its latest financials, the REIT increased its dividend by 10% to $3.41 per share. The payout represents a yield of 1.96% on an annual business. Remember, growth is key here. You cannot discount the industry in which Equinix operates.

According to Statista, a market size of $410.40 billion by 2027 is projected with a CAGR of 4.66% from 2023 to 2027. This suggests significant annual revenue growth potential for data centers in the coming years.

Equinix is also recognized as one of the most environmentally-friendly data centers REITs worldwide, with a 95% usage of renewable energy and a stated aim of achieving 100% renewable energy. The company has maintained a minimum of 90% use of green energy since 2018.

On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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Icahn proposes three candidates for Illumina’s board — Here’s what could be next in the battle

Reptile8488 | E+ | Getty Images

Company: Illumina (ILMN)

Business: Illumina develops, manufactures and markets life science tools and integrated systems for large-scale analysis of genetic variation and function. It operates through Core Illumina and Grail. Grail, which was acquired in August 2021, is a health-care company focused on early detection of multiple cancers. Grail’s Galleri blood test detects various types of cancers before they are symptomatic.

Stock Market Value: $35.4B ($224.55 per share)

Activist: Carl Icahn

Percentage Ownership:  1.39%

Average Cost: n/a

Activist Commentary: Carl Icahn is the grandfather of activist investing and a leading pioneer of modern-day shareholder activism. When most people think of Icahn, health-care companies are generally not their first thought. However, Icahn has had extensive activist experience at health-care companies. In nine prior concluded activist engagements in the health-care industry going back to ImClone Systems in 2006, Icahn has averaged a 66.27% return versus -0.11% for the S&P 500. In situations in which he received board representation, that average return goes up to 93.90% versus 17.58% for the S&P 500.

What’s Happening?

On March 13, Carl Icahn sent a letter to the company’s shareholders announcing his intention to nominate Vincent J. Intrieri, Jesse A. Lynn and Andrew J. Teno for election to the company’s board at the 2023 annual meeting. Additionally, Icahn criticized the company’s acquisition of Grail, which he says has led to $50 billion of value destruction.

Behind the Scenes

Illumina created Grail as a business unit in late 2015 and spun it out in January 2016. Less than five years later, in September 2020, Illumina agreed to acquire Grail back for $8 billion. They closed the acquisition a year later despite not getting approvals from the Federal Trade Commission or the European Union and with indications that there would be resistance from one if not both regulators. This angered the European Commission, which ultimately blocked the deal and levied the maximum fine. Illumina has appealed the decision and set aside a $453 million liability reserve for the potential European fine. Since the acquisition closed in August 2021, Illumina’s stock price fell by 57% from $522.89 to $225.88, eliminating $47 billion of shareholder value. To put that into perspective, the entire market cap of Silicon Valley Bank prior to its implosion was less than $16 billion.

Icahn thinks Illumina is a great company but a quintessential example of what is wrong in corporate America. He takes issue with Illumina spinning off Grail cheaply just to overpay for it less than five years later, but that is only the beginning. Reasonable boards overpay for companies all the time, but we know of no other board that has ever consummated an $8 billion acquisition knowing that the regulators were likely going to have a problem with it. Icahn said this is at least gross negligence and later said that Illumina directors that approved the acquisition could be “personally liable.” He would like to see Grail divested from the company, potentially through a rights offering, and management focused on the core business of Illumina.

Inflation is the worst thing an economy can have, says billionaire investor Carl Icahn

So, Icahn does what Icahn does: He took a position in the company and nominated to the nine-person board three directors who he thinks can come in, right the ship and restore the shareholder value that has been lost. One might expect that a company that has destroyed so much shareholder value in so little time would welcome experienced and fresh eyes to turn things around. But Illumina rejected Icahn’s nominees because “the board has determined Icahn’s nominees lack relevant skills and experience.” Icahn’s nominees have significant restructuring, corporate governance, M&A, capital markets and legal experience — five things the company desperately needs. The current board has nine directors, seven of whom have a science and engineering background and two of whom have a financial background. Not one director is an investor and even more incredible is not one of the nine directors has any legal background or experience whatsoever. This board made an unprecedented decision to close an $8 billion acquisition in the face of resistance from both U.S. and European regulators without having anyone with any legal experience on the board and despite having to know that at the very least this decision was going to embark them on a multi-year legal battle. Moreover, even after this battle started, they did not add anyone with legal experience to the board. Now, when Icahn suggests they add to the board Jesse Lynn, general counsel to Icahn Enterprises with 27 years of legal experience, the board responds that he lacks the relevant skills and experience. 

A board that makes mistakes that cost shareholders tremendous value is obviously not a good thing, but it is reparable. What is much worse is a board that cannot even see the problems and the mistakes, and it also thinks the situation is under control as shareholder value continues to erode. That is what we have at Illumina. This can be fixed by adding Icahn’s three nominees to the board. Not only do they have the legal, capital markets and corporate governance experience to help the board spot the issues, they have the restructuring and M&A experience to help management execute a plan to restore shareholder value. But most of all, they have tremendous skills and experience in the most important thing this board needs that they fail to realize – holding management accountable.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.

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