For income-seeking investors, high-yield dividend stocks are often a great solution. In addition to generating income, they often sport nice growth potential as well. However, sometimes a high yield is the result of the stock itself underperforming. The lower the stock price, the higher the payout, expressed as a percentage.
Unfortunately for existing shareholders, there are a number of stocks today that fall into the "iffy" category. Not that Qualcomm (QCOM -0.90%), IBM (IBM -0.35%) and General Electric (GE 0.34%) can't get things turned around; they may. The question is: Will they?
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Legal issues
As shareholders of Qualcomm know, last quarter was an eye-opening example of its ongoing legal troubles. Even if we set aside the courtroom squabble with longtime customer Apple, other legal troubles cost Qualcomm big in its fiscal third quarter.
Qualcomm wrote two large checks to settle a couple of its outstanding court-imposed fines, which severely impacted its earnings results. The first was a $940 million payment to resolve a long-standing dispute with BlackBerry. That payment alone shaved $0.48 a share off Qualcomm's bottom line.
The other fine required Qualcomm to fork out $927 million to a South Korean regulatory agency, which alleged the same thing so many others have: Qualcomm's licensing fees are anti-competitive. As for the Apple "situation," Qualcomm's most profitable segment, licensing revenue, dropped 42% to $1.17 billion, and impacted the unit's earnings before taxes a negative 51%. Qualcomm's 4.4% dividend yield is nice, but with so many outstanding questions, danger lurks.
Time to deliver the goods
IBM is on a roll, but not in a good way. Last quarter's $19.3 billion in revenue was a 5% drop year over year, marking the 21st straight quarter of total sales declines. While that got most of the headlines, more concerning was the slowing growth of IBM's strategic-imperatives revenue.
CEO Ginni Rometty has gone all in on IBM's transition from legacy hardware to its strategic imperatives, which include the cloud, data analytics, mobile, and cybersecurity. Naturally, a transformation of that magnitude takes time, so a bump or two along the way is expected. But the meager growth in several of IBM's core segments is disconcerting, to say the least, despite the stock's 4.1% dividend yield.
Cloud sales continued to climb, rising 15% to $3.9 billion, an exemplary performance. However, analytics -- a segment in which IBM has invested billions of dollars over the last two years -- increased just 4%, as did its security sales. Mobile revenue jumped 27%, but as the smallest contributor to total strategic-imperatives sales, that result was just a consolation. Though I remain bullish on IBM, there's no doubt danger lurks.
Tell me it isn't so
Similar to IBM, GE's 3.9% dividend yield isn't in danger, but its underlying results have been nothing short of disastrous for too long now. To its credit, GE shaved $1.63 billion in overhead compared to 2016's second quarter, but that wasn't nearly enough to overcome the 12% drop in revenue to $29.56 billion.
Things get even worse looking at GE's bottom line. Last quarter's $0.13 a share was a disappointing 57% decline compared to last year's $0.30 a share. And if analyst expectations are close to actual results, the current quarter will be even more depressing for shareholders. Consensus estimates are for earnings per share of $0.05, a significant decline from the $0.32 a share GE reported a year ago.
Not all is lost. GE's renewable energy unit did report a 17% rise in revenue to $2.46 billion and a 5% increase to $6.97 billion from its largest division, power. It should be noted that much of the EPS hit was due to a one-time "corporate items" charge of $1.58 billion. But with more of the same negative results coming, investors should be wary as GE meanders through its personal mine field.
