Chesapeake Energy Corporation (CHK), The Coca-Cola Company (KO), Verizon Communications Inc. (VZ) & BP plc (ADR) (BP): 4 Dividend Stocks That Will Hold You Back

Page 1 of 2

Investor excitement flows through the air: for the first time ever, the Dow Jones Industrial Average (INDEXDJX:.DJI) broke 15,000. In only five months in 2013, the Dow has risen more than 16%, better than 2011 and 2012 combined. That said, now is a great time to evaluate your portfolio.

Winners and losers

During an expansion, there are winners and losers (the under-performers). The latest winners are cyclical stocks. These companies get hit in a market downturn, but they bounce back as consumers and businesses grow in confidence. Example sectors include consumer discretionary, luxury goods, and real estate. But remember, not all cyclical stocks are great buys (see below).

On the flip side are the non-cyclical, defensive companies which provide stability during times of volatility. Now investors are jumping out of dividend shares – the stocks that pulled them out of the recession in the first place. Their bread and butter since 2010. But this is no time to get sentimental – investing is a business, not a relationship. If you don’t want your portfolio left behind as the economy starts whirring, you need to drop these four dividend stocks (and one volatile cyclical stock) now:

Chesapeake bogged down

Chesapeake Energy Corporation (NYSE:CHK)

Let’s start with cyclical Chesapeake Energy Corporation (NYSE:CHK). We, at ADifferentAngle, covered reasons Chesapeake could do well in our post “2 Stocks Ready to Profit from the Coming Oil Boom” but here is an opposing view. Oil continues to do well, but natural gas is still anyone’s guess. Chesapeake has 78% downsidehedgeprotection on natural gas until Q4 2013, and it also has 88% of oil covered. That said, Chesapeake Energy Corporation (NYSE:CHK) likely would not participate in an oil rally, but is still exposed in the case that natural gas prices falter.

In terms of payouts, Chesapeake paid out a steady dividend for years, but it’s run into profitability issues. By “profitability issues,” I’m talking about negative EPS in two of the last four years. Not surprisingly, Chesapeake Energy Corporation (NYSE:CHK) started hunting for a new CEO in January and settled on Robert Lawler, a former executive at Anadarko Petroleum Corporation (NYSE:APC).

Mr. Lawler will have his hands full when he takes the reins on June 17. The company has been cutting costs and selling assets since last year, but remains saddled with $13.4 billion of debt. Low natural gas prices aren’t helping the second-largest U.S. natural gas producer, either. In response, Chesapeake Energy Corporation (NYSE:CHK) stepped up production of the more profitable crude oil by more than 50% in the first quarter.

These changes are the right steps for the company to regain profitability, but don’t expect share price growth from Chesapeake Energy Corporation (NYSE:CHK) until it can at least turn a profit.

America’s classic

The Coca-Cola Company (NYSE:KO) is another great American standby when economic times get tough. Here’s how Coca-Cola (orange) compared to the Dow (blue) in percentage returns from 2008 through 2010:

^DJI data by YCharts

Not bad, right? The Coca-Cola Company (NYSE:KO) actually managed a positive return in the three years while the DJIA languished in double-digit losses. But the Dow Jones has since caught up with Coca-Cola and looks likely to outpace it this year. The Coca-Cola Company (NYSE:KO)’s stock price is showing signs of leveling off. But that’s not really a surprise: Coca-Cola gives out more than 50% of its profits to shareholders. It isn’t looking for high-growth opportunities. Leave The Coca-Cola Company (NYSE:KO) for a rainy day.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!