Since we are Halloween, I thought of doing something different and highlight a few “horror stories” in the dividend investing world. Several investors wrongly think that investing in paying dividend companies is a safe move. That once their money is invested, they will continue to receive their check quarterly without any worries. Unfortunately, there are several companies that can’t keep up with their promises and this end-up in nightmares for investors. Here are a few stories I’ve followed throughout the past few years… I’m telling you, this post is not for the faint of heart
RadioShack (RSH)
No graphs available as the company filled bankruptcy in 2015.
Funny enough, RSH was part of my first “Best 2012 Dividend Stock” series. Here’s what I wrote about the company at that time:
RadioShack is a retailer of electronics and services. Instead of using large stores similar to Best Buys, RadioShack has privileged a higher number of stores (4,486 in US, Puerto Rico and Mexico). Along with its RadioShack stores, the company also operates several kiosks. They have 1,267 kiosks located within Target and Sam’s Club stores.
While the sales are stagnating, RSH has kept increasing its dividend. With a low payout ratio (12.86%) and a high yield (5.1%), the company will be able to sustain this dividend payout for a long time. I’ve picked RSH to be part of this eBook because of its low P/E ratio (7.6) and the fact that Best Buys is struggling to post strong financial results. The company is also repurchasing $200 million of shares in 2012.
This sounds like a pretty good start. In my books, I also write a section about the company’s weakness. Here what I wrote about RadioShack:
RadioShack faces a lot of competition from Best Buy and Wal-Mart. Because of a high dividend and the fact that RSH lost a lot of value on the market in 2011, this could be a risky but an interesting pick.
I guess it was more risky than interesting! RSH continued to post worst results in 2012 and the following 2 years led the company to bankruptcy. RSH didn’t adapt to the shift to the online business and basically killed their own store by keeping a very small distance from each other. The company also concentrated a lot of their energy in the mobile selling business. It’s never a good idea to have 50% of your revenue coming from a single activity…
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