Summer holidays have begun. This is a good time to have a look into the stock portfolio, challenging the personal picks and always asking “why” they have a place in the portfolio. Occasionally, a summer clean-up may be appropriate. Especially, if the core strategy consists of banking on dividend payers that generate a supposedly low-maintenance passive income stream. Be on guard, here come my next four names where I think the dividends will have a tough time to be sustained.
Summary and key takeaways from today’s Weekly
– I am discussing four more ideas where I am seeing the risk for their dividends to be cut.
– Not all payouts are in danger in the very short-term, but it should not be surprising to see adjustments to the downside over the next quarters.
– A look at the fundamentals reveals some red flags.
As I have written already multiple times about this topic, and as the sun is shining, making most people want to spend their time outside, I am coming straight to the point.
Here is an overview of four more dividend paying stocks where I think the payouts might not be sustainable in the near- to mid-term. To make it clear, I am not expecting imminent cuts over the next weeks or couple of months, but there are a few early-stage warning signs that warrant caution.
Let’s have a look.
If you’re looking for attractive, overlooked stock ideas the majority has a blind eye on, look no further. I am offering compelling non-mainstream cases in concise 12-page member-exclusive reports.
Want to outsmart the market? Get active now! Become a supporting paid-member and receive my best stock ideas (plus updates).
Join me and my members on our journey to beat the markets!
both as per 16 July 2025 market close – since August 2022
Better have an eye on these names…
… if you’re holding them for their dividends. Or considered them to be possible contenders for your income portfolio.
Seriously, I think it makes absolutely sense to double-check the fundamentals.
My first pick is German luxury-car maker Porsche AG.
To avoid any confusion from the get go, I am talking about the sports-car producer, Dr. Ing. h.c. F. Porsche AG (ISIN: DE000PAG9113, Ticker: P911), which became publicly traded again in September 2022. I am not discussing Porsche Automobil Holding (ISIN: DE000PAH0038, Ticker: PAH3), the family’s investment holding.
Both Porsche stocks are non-voting preference shares – not to be confused with preferred shares that are known in America. Common shares with voting rights of both Porsches are not available for public trading.
Preference shares of the car maker, or Porsche AG as I will call them from here on, made a phenomenal public comeback after having been swallowed and rescued by Volkswagen during the depths of the Great Financial Crisis in 2009 when Porsche was on the brink of insolvency.
The stock went public again at slightly more than 80 EUR and over the first months showed its sporty heritage. Shares peaked out at around 120 EUR by mid-2023.
Since then, the stock is down by two-thirds. Who’d have thought (see here)?
Despite (or maybe because) shares having been seen as a great investment with a pretend still-modest valuation, especially compared to Ferrari (ISIN: NL0011585146, Ticker: RACE), the reality turned out to be a different one.
This was practically the sign of times expressing megalomania.
We can see below that Ferrari on an EV / sales basis was and still is considerably more expensive than Porsche AG. As if this wasn’t enough, Ferrari experienced even more multiple expansion while Porsche saw its valuation compressing.
Back to Porsche, the reasons are clear. The company has been and is still experiencing big headwinds in its business. Sales peaked in 2023 at 40.5 bn. EUR.
Last year, in 2024, sales still achieved a respectable 40.1 bn. EUR.
But the trend is clearly down. The guidance for 2025 with the presentation of the full-year 2024 results already saw a lower sales outlook.
It took only one quarter for a significant downward revision.
It was not just sales.
Margins were already falling for quite some time. If you look again at the screenshots above, you’ll notice that margins (return on sales) have practically halved – on top of the sales decline.
For 2025, operating margins are expected to be in the mid-single digits only.
The first explanations were a big model offensive with practically the entire lineup having been refreshed, and on top huge investments into BEVs and batteries, which was not false.
However, at some point management could not hide the real issues anymore.
The BEV offensive did not play out as envisioned. On top, China has been showing a full step on the brakes. As can be seen in the chart below, in 2008 China received 7% of Porsches sold in that year. In 2021, it was 32% and on top from a much higher basis.
Since then, total vehicles delivered went up only marginally from 300k to 310k, while the Chinese share dramatically collapsed.
Whether a change in taste, China-first buying decisions or economic challenges in China – it cannot be denied that Porsche, but also other non-Chinese car manufacturers, have been reporting massive headwinds from the Chinese market.
The share of BEVs in the entire line up, respectively for vehicles sold, is rising. But the development hasn’t met prior expectations. It’s a mixed picture with the Taycan model not selling well, while the (cheaper) electrified Macan SUV seems to be a hit.
Unfortunately, Porsche still is in a period of higher investments into Capex and R&D, pressuring free cash flow generation, on top of the weak business environment.
In essence, Porsche will have a tough time keep the dividend stable. Management is targeting in the mid-term a 50% payout ratio measured against earnings.
Earnings per share in 2023 were 5.67 EUR, then fell to 3.95 EUR per share. The last dividend was 2.31 EUR or a payout ratio of 58%. With sales pressure and margins going into the basement, even if only in the short-term, I cannot see the dividend remaining on the current level.
Below are the figures over the last twelve months on a rolling basis.
Theoretically, Porsche could keep it stable with 8.3 bn. EUR in cash per last count. The dividend did cost 2.1 bn. EUR. But with economic uncertainty, a weak Chinese market and tariffs in the USA (which Porsche for now has been swallowing), the risk for a significantly lower dividend next year are high.
Currently, at ~40 EUR, the 2.31 EUR payout yields 5.7% – a bit too sporty. I would be surprised if Porsche kept the dividend stable.
Next candidate on my list is UPS (ISIN: US9113121068, Ticker: UPS).
The package delivery and logistics giant currently has an unprecedented dividend yield of 6.6%, at least when looking at the last ten years.
The stock price chart goes exactly in the other direction, telling us that the business is having issues. Over the long-term, in this case more than 25 years, the stock was not a good buy-and-hold investment with a price return of just 41% – or 1.4% CAGR.
Sure, UPS has been paying a dividend on top. That’s still a lousy return.
This is clearly a cyclical play that better should not be held just for the dividend. It can drag on the nerves to see such a massive price decline.
I know that many hard-core dividend investors don’t care (or pretend not to care) about the price movements. The focus is only on the dividend. I fully understand that.
However, not seldom a massively declining stock is the result of a troubled business. Thought a bit further, challenges in the business can result in dividend cuts.
And here we are. I think UPS might need to adjust its payout lower.
The last time UPS cut its dividend was a quarter-century ago. Since then, the dividend was kept at least stable every year. Even during the Great Recession of 2008–2009.
During the lockdowns and a booming business, UPS then massively hiked the dividend, abandoning their previously cautious hiking rhythm.
The lockdown boom is obviously over and demand has normalized.
But new challenges emerged.
Economic uncertainty is not favorable for the business. Tariffs and potential re-routings of shipping lanes can be beneficial, but also unfavorable for UPS. What is sure for now, sales have peaked, and stabilized on a higher base compared to the pre-2020 years. Big price increases have played a major role.
Speaking of price increases, higher energy and especially labor costs have pressured margins. Unlike with sales, the figures have not stabilized on a higher level.
Instead, margins have fallen BELOW the pre-boom levels.
Cash flow first shot up, too, only to fall back again either.
While FCF is holding up relatively well, the thing is the dividend is now causing a significantly higher obligation, if the goal is to keep it stable.
Over the last rolling twelve months, the dividend consumed a bit more than the entire FCF.
UPS posted a relatively strong first quarter with stable results.
Further, management is currently loosening its ties with amazon (less profitable), focussing on automating more processes to drive down costs, and as a result to make the business more profitable.
This is great.
However, at the same time consumer demand has left a question mark open. Average daily volumes (ADV) in B2C were down 7% in America, the by far biggest sales generator, and were guided to be down even 9% for the entirety of ADV in Q2.
On the positive side, the higher-margin international business is holding up comparatively well.
All in all, it’s a mixed bag.
UPS has net financial debt and unfunded pension liabilities of in total ~24 billion USD. Cash on hand per last count was 4.8 billion USD.
It will be a tight race. If demand stabilized and UPS succeeds fast enough to lower their cost base, the dividend could be safe for now and kept stable. UPS is not increasing it every year.
But if the economy turns down only a bit, the dividend might need to be cut to preserve cash.
Which leads us to my third pick, Brown-Forman (ISIN: US1156372096, Ticker: BF.B).
The Jack Daniel’s maker is a dividend aristocrat with a series of more than 40 years of annual dividend increases. Currently, the stock is yielding a practically never seen 3.3%.
I have written a few Weeklies about how I am seeing the alcohol and spirits industry (see here, here and here).
In summary, it does not seem to be just a cyclical hang-over like many people who bought a the top make you want to believe. The signs are pointing more towards structural shifts and issues.
Brown-Forman has grown its sales only slowly over the last decade, with the peak being behind us. During the same period, operating earnings are only flat.
The business is experiencing not only margin pressure, but also declining sales and volumes. There are no signs of the former growth and premiumization story.
The only intact bull market is to be found in BF’s inventories. Total inventory levels and days sales outstanding continue to climb, singing that the envisioned demand is not there.
At the same time, debt has risen with cash levels being rather low.
To give you concrete numbers, the company has net debt of 2.4 bn. USD.
Operting and free cash flow have fallen not only compared to the peak a few years ago, but also back to levels where they were almost ten years ago.
2.4 bn. USD of net debt compare to currently less than 600 mn. USD of operating and only 431 mn. USD of free cash flow. That’s high leverage.
Cash flows were a bit pressured from negative working capital effects, and management wants to reduce Capex. This is fine, but it doesn’t change the overall trend.
It will be a tight race, because at the moment practically the entire free cash flow goes for the dividend.
If sales and volumes continue to decline, despite cost cutting efforts and potentially positive working capital shifts, it will be hard to keep up the dividend over the mid-term.
My last candidate for a dividend cut is Kenvue (ISIN: US49177J1025, Ticker: KVUE).
It is a relatively young stock market listing, but not a fresh-new company. Kenvue is the former consumer unit of Johnson & Johnson (ISIN: US4781601046, Ticker: JNJ). The latter is focussing on biotech and medtech, while Kenvue as the former consumer care division is now a standalone business since the spin-off in 2023.
Kenvue owns brands like Tylenol (pain relief), Neutrogena (skincare), Listerine (oral care), Band-Aid (adhesive bandages), Aveeno (skincare, baby care), Johnson’s (baby care), and more known here in Germany the baby care brand Bébé.
Kenvue is considering divesting Bébé along with other underperforming skin health and beauty brands, as part of a portfolio streamlining effort (see here).
While Kenvue’s dividend yield is not even that high with less than 4%, as we will see below, it is in danger.
Sales and operating income are trending sideways. There is no growth – in times of higher inflation, this is effectively shrinking in real terms.
Margins so far have been holding up quite well.
First quarter results showed net sales decreasing by 3.9%, with organic sales being down by 1.2%. Management was confident to see a stronger second half for a full-year sales increase of +1% to +3% with an organic sales boost even above that.
Since then, a new CEO was appointed to lead the change.
On the same occasion, disappointing preliminary Q2 results were posted.
A 4.0% decline in net sales and even a 4.2% drop in organic sales, together with EPS below estimates are a blow to the previously ambitious forecast.
Currently, the dividend costs more than FCF is generated.
Operating cash flow was pressured through negative working capital effects which could be turned around. However, the working capital deficit was only 309 mn. USD while the gap between FCF and the dividend currently is ~120 mn. USD.
If they release some working capital, the dividend could be covered again.
But can this be the goal to just barely cover the dividend? With sales continuing to disappoint and a few brands under review for a sale, it will be interesting to watch whether the new management of Kenvue will use this as an excuse to adjust the dividend to a healthier level.
With 7.7 bn. USD in net financial debt (1 bn. USD cash and 2.4 bn. USD of short-term debt due), the company cannot afford such a dividend.
It’s currently beyond its means. A cut should not surprise.
At the same time, the stock is extremely expensive. The EV is 48 bn. USD for a FCF of just ~1.5 bn. USD.
No, thank you.
Conclusion
I am discussing four more ideas where I am seeing the risk for their dividends to be cut.
Not all payouts are in danger in the very short-term, but it should not be surprising to see adjustments to the downside over the next quarters.
A look at the fundamentals reveals some red flags.
By becoming a Premium or Premium PLUS Member, you get instant access to all my already published research reports as well as several updates.
Likewise, you qualify for eight, respectively four more exclusive reports with my best investment ideas plus updates on the featured businesses over the next twelve months.