Dividend stocks can be a smashing source of passive income. That is, so long as the cash actually hits my account. They can also feel a bit pointless if distributions are cancelled out by a nasty fall in a company’s share price.
With these caveats in mind, I’ve been looking for FTSE companies I think could be at risk of disappointing their investors in 2025 and which I’ll be steering clear of.
Shockingly poor form
One example is asset manager abrdn (LSE: ABDN). As I type, the £2.6bn-cap has an incredible forecast yield of 10.4% for FY25. By comparison, the FTSE 250 index as a whole yields ‘just’ 3.3%.
Should you invest £1,000 in Abrdn right now?
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Dig a bit deeper however, and this isn’t a stock for faint-hearted Fools to consider. The shares have been on a shocking run, losing over half their value in the last five years as key customers have jumped ship. And with confidence in the UK economy fragile at best (and passive funds increasingly eating into active managers’ takings), I’m not sure we’ll see a turnaround in fortunes this year.
This could have consequences for that mighty dividend stream, especially as this year’s payout isn’t expected to be covered by profit. Even if it is paid, the total dividend has been stuck at 14.6p per share since 2020! That’s never a bullish sign.
A favourite with short sellers
If there’s one silver lining to this dark cloud, it’s that the stock trades at a below-average price-to-earnings (P/E) of 11. And if management is able to spring a pleasant surprise on the market when it reports full-year numbers in March, we could see more buying activity here.
Then again, I note that abrdn features quite high up the table of most-shorted stocks on the market. It’s not ideal when a significant minority of traders are betting that a share price has even further to fall.
Taking all this into account, there’s too much risk here for me to get involved.
Looking good
A second dividend stock I’m not meddling with is B&Q owner Kingfisher (LSE: KGF). This might seem like a strange decision. The dividend yield here stands at just over 5% for FY26 (beginning at the start of February). That’s far more than I’d get from a FTSE 100 tracker fund. What’s more, this looks set to be covered by profit. So it makes sense to think that investors will receive something this year.
Although I’m in danger of comparing apples with oranges, the valuation’s also similar to the aforementioned asset manager as well.
So what’s not to like?
But with inflation creeping higher, I’m concerned that Kingfisher could be in for a tough 2025. It seems only reasonable to expect the business to suffer if the cost-of-living crisis rumbles on.
And even if the DIY giant manages to do well trading-wise (perhaps a brilliant spell of weather brings out the gardeners), it still needs to find £31m to cover the hike in employers’ National Insurance contributions (NICs) announced by chancellor Rachel Reeves last October.
As it happens, Kingfisher also features on the list of most popular stocks among short sellers. In fact, it’s even more ‘popular’ than abrdn!
Again, I don’t think the income’s worth chasing for the risk I’d be taking on.
