2 dividend stocks I’d sell and avoid for the next 10 years

These two shares appear to be overvalued given their outlooks.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the FTSE 100 trading at just under 7,400 points, it is perhaps unsurprising that there are a number of stocks which appear to be overvalued. Certainly, the prospects for the global economy are relatively upbeat, and earnings growth may be positive in the next few years. However, in some cases there are stocks which offer a mix of high valuations and relatively unappealing outlooks. Here are two companies which appear to offer both of those undesirable traits.

Overpriced growth story

Reporting on Tuesday was bakery and on-the-go food retailer Greggs (LSE: GRG). Its performance in the first half of the year has been encouraging, with the company on track to meet expectations for the full year. Its sales increased by 7.3% as it recorded company-managed shop like-for-like (LFL) sales growth of 3.4%. This was driven by strong growth across a number of business areas including its Balanced Choice meal ranges and hot food choices.

The company’s store opening programme continues, with 19 shops closed in the first half of the year and 61 new shops opened. It expects around 100 net new shops for the full year. It has also rolled out a new central forecasting and replenishment system ahead of schedule, which could make the business more efficient in future.

Should you invest £1,000 in National Grid right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if National Grid made the list?

See the 6 stocks

Looking ahead, Greggs is forecast to post a flat bottom line this year, followed by growth of 7% next year. Despite this somewhat modest growth outlook, it trades on a price-to-earnings (P/E) ratio of 17.9. This suggests it may be overpriced given the uncertain outlook for UK retailers as rising inflation puts pressure on disposable incomes. Therefore, it seems to be a stock to avoid given its lack of a margin of safety.

Lack of growth

Also trading on a high valuation given its growth outlook is Dairy Crest (LSE: DCG). It is expected to report a rise in its bottom line of 5% in each of the next two financial years. This is a lower figure than the expected growth rate of the wider index, which would usually mean a lower valuation would be applied by the market. However, in this case the stock has a P/E ratio of 15.8. When combined with its growth rate, this gives a price-to-earnings growth (PEG) ratio of over three, which suggests a share price fall could be on the cards.

Of course, Dairy Crest has income appeal at the present time. It currently yields 3.8% from a dividend which is covered 1.7 times by profit. With inflation moving higher, this could create additional demand for the company’s shares and help to support its stock price. However, with a number of stocks in the FTSE 350 having 4%+ yields and offering lower valuations as well as similar growth outlooks, the relative appeal of Dairy Crest may be somewhat limited. As such, it may be better to avoid it until a higher valuation can be more easily justified.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Were you born before 1972?

No matter what year you were born in, this special report is well worth a look.

It’s called: ‘5 Shares for Trying to Build Wealth after 50’. And it’s yours, absolutely FREE.

At The Motley Fool, we believe it’s never too late to build wealth with shares. Indeed, despite the current global upheaval, this may be an ideal time to start. Our analyst team have crunched the numbers. This free report brings you up to speed.

See the 5 stocks

More on Investing Articles

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

£10,000 invested in Lloyds shares on 7 April is already worth…

After a dip in early April, Lloyds shares are back to their 30%+ year-to-date gain in 2025. And analysts are…

Read more »

US Stock

What I’d look to buy as the US stock market heads for the worst month since 1932

Jon Smith sifts through the US stock market to try and find some ideas that have fallen in value recently…

Read more »

Growth Shares

Prediction: I think £1,000 invested in this UK stock could double by 2030

Jon Smith runs through a FTSE 250 stock with a market cap just over £1bn that he feels has the…

Read more »

Investing Articles

With £10k in savings, here’s how an investor could target a second income of £500 a month

£10k in savings could be the foundation needed towards a powerful second income. Our writer details some steps necessary to…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing For Beginners

£1k invested in the FTSE 100 on ‘Liberation Day’ is now worth…

Jon Smith talks about the volatility in the FTSE 100 in the weeks since the tariff announcements and flags up…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

Barclays’ share price is down 7% from March, so is now the right time for me to buy?

Barclays’ share price has dipped recently, which could mean a bargain to be had. I took a deep dive into…

Read more »

Investing Articles

Down 13% since March, does this rising FTSE 250 defence star look an unmissable buy for me?

The FTSE 250 is currently home to many of the big stock stars of tomorrow and I think this high-tech…

Read more »

Investing Articles

Should I buy Aston Martin shares for my ISA while they’re under 70p?

With Aston Martin's shares down hugely across multiple time frames, this writer is wondering if he should snap up some…

Read more »