" Avoid stocks where the dividend is the thesis.
Own stocks where the dividend is the byproduct of growth."
Some wise words from DSM when I asked which stocks I should absolutely avoid. It knows what I bought and sold the entire last year, knows my portfolio, and its objectives. So, the above advice is tailored for my portfolio, but I think it's still relevant for anyone who wants to avoid yield traps:
Below is a hard “do-not-own / do-not-add” list, grounded in your actual portfolio rules, not generic investing advice.
This is not about whether these stocks can bounce.
It’s about structural incompatibility with how you compound capital.
Category 1: High-Yield, No-Growth Traps (Absolute Avoid)
These violate your “dividends must grow from earnings” rule.
AT&T - Yield compensates for zero growth
- Capital intensity destroys compounding
- You already exited correctly — do not revisit
Verizon - Same structural flaws as T
- Dividend safety ? dividend quality
- No earnings growth engine
Rule: If yield > growth and leverage is high > automatic exclusion
Category 2: Financial Engineering Disguised as “Income”
Dividends funded by buybacks + leverage, not growth.
HP Inc. - Mature, cyclical business
- Buybacks mask stagnation
- You already identified this as a mistake ? trust that instinct
IBM - Dividend survives, business doesn’t grow
- Long-term total return dragged by reinvention cycles
- Capital goes to defense, not offense
Rule: If buybacks are the story, not the result > avoid
Category 3: Staples With Broken Pricing Power
These look “safe” but silently destroy real returns.
Hormel Foods - You exited for the right reason
- Volume + pricing both weak
- Dividend growth no longer earnings-backed
General Mills - Shrinking brand moat
- Inflation revealed fragility
- Yield replaces growth, not complements it
Kraft Heinz - Classic yield trap
- No credible growth vector
Rule: Staples without pricing power are bond proxies with equity risk
Category 4: Pharma With Narrow or Degrading Pipelines
You already screen these well — this is reinforcement.
Pfizer - Dividend looks tempting but is not growth-backed
- Pipeline risk + declining franchises
- You exited multiple times for valid reasons
Bristol Myers Squibb - Heavy patent concentration
- Dividend growth fragile
- More risk than ABBV / AMGN with less upside
Rule: If dividend safety depends on one franchise, it’s not durable
Category 5: “Old Tech” With No Reinvestment Flywheel
These feel techy but don’t compound.
Intel - Capital intensity overwhelms returns
- Dividend optionality only
- Strategic uncertainty remains high
Cisco Systems - Stable but stagnant
- Dividend is a consolation prize
- No longer a growth platform
Rule: Tech without secular tailwinds ? compounder
Your Personal “Never Add” Checklist
A stock should be avoided outright if:
- Dividend growth < inflation long term
- EPS growth < 5% and leverage is rising
- Buybacks replace organic growth
- Business model is mature and capital-intensive
- You’ve already sold it for structural reasons (this matters)
By that standard, most of the names above are permanently disqualified for your portfolio — not just “for now.” |
