Forget the 7% yields! I reckon this dividend stock could plummet

Royston Wild identifies a dividend big-hitter that he thinks could leave a big hole in your shares portfolio.

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.

sdf

For income chasers, Arrow Global Group (LSE: ARW) has proved to be something of a hero in recent times. A combination of eye-popping cash generation and great profit growth has given it a platform to raise dividends by a colossal 149% over the past five years.

But I have to say that not even predictions of another hefty dividend rise in 2019 — from 12.7p per share last year to 15.4p this time around — is enough to tempt me to buy the financial giant today. And nor is a subsequent market-bashing payout yield of 6.9%.

There’s a very good reason why Arrow Global is one of the most shorted stocks on London indices right now (according to shorttracker.co.uk it’s in the top three), namely increasing fears over Brexit and how this will impact profitability in the near term and beyond. And I share the market’s apprehension.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Bale out on Brexit worries

The business is involved in buying up debt and then subsequent collecting it. Although it’s been ramping up its operations in Europe in recent years, the threat of severe economic turbulence in its home market is casting doubts on how much of  this debt it’ll actually be able to recover.

As I’ve noted before, Britain’s major listed banks are already battling against a steady rise in the number of bad loans on their books, reflecting the impact which Brexit uncertainty is causing across the UK economy. Heaven knows how bad things could get should the impasse on resolving the political saga persist or, even worse, politicians push the country down the road of a destructive no-deal exit from the European Union.

Sure, Arrow Global may have been taking steps to insulate itself by buying up better-quality debt. But in the event of a disorderly Brexit outcome — a scenario which many suggest would even push the UK into recession — it’s still likely to be fighting a losing battle to keep its growth story on track.

It’s not all about Brexit, though

However, the possibility of an economic crash in the UK isn’t the only concern for the company’s shareholders. I’m not talking about the impact of a broader slowdown in the global economy, either. There’s also been plenty of public scrutiny over accounting issues at the loans specialist, and the prospect of fresh rounds as we move through 2019 and beyond provides more reason to be cautious.

So forget about Arrow Global’s big yields and its lowly forward P/E ratio of 5.1 times. There’s good reason why the company is valued so cheaply and is likely to remain so as the risks to its bottom line rise.

City brokers currently suggest group earnings will rise 20% in 2019, although I reckon this figure is in danger of being hacked down sooner rather than later. My advice? Give the big yielder a very wide berth and go dividend shopping elsewhere. 

5 stocks for trying to build wealth after 50

Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy 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.

Royston Wild has no position in any of the 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.

More on Investing Articles

Group of young friends toasting each other with beers in a pub
Investing Articles

1 Warren Buffett stock I’m staying well away from

Warren Buffett’s Berkshire Hathaway has been buying shares in Constellation Brands recently. But Stephen Wright prefers its FTSE 100 counterpart.

Read more »

Santa Clara offices of NVIDIA
Investing Articles

Nvidia stock just hit an all-time high. So could it still make sense to buy?

Nvidia stock has hit an all-time high today. Our writer reckons it may still be cheap from a long-term perspective.…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

As Rolls-Royce shares smash record after record, could they be a bargain even now?

Rolls-Royce shares have performed incredibly in recent years. This writer reckons they may yet go even higher -- here's his…

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Growth Shares

2 UK stocks that could be under pressure if fiscal problems keep rising

Jon Smith talks through a couple of UK stocks that he thinks could be under pressure if the government change…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

2 FTSE 100 shares with low P/E ratios! Which should I consider buying?

I'm hunting for the best UK value shares to buy this July. Here are a couple from the FTSE 100…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

4 stocks I bought for my Stocks and Shares ISA in June!

Our writer reveals what he thinks is the most exciting from the four investments he made in his Stocks and…

Read more »

Close-up of British bank notes
Investing Articles

5 dividend shares yielding 5.9%+ to consider in July

Christopher Ruane discussed a handful of FTSE dividends shares yielding close to 6% or higher that he reckons investors should…

Read more »

Branch of NatWest bank
Investing Articles

Up 50% in just 1 year, can the NatWest share price keep going?

Christopher Ruane looks at a couple of ways to evaluate the Natwest share price and decide whether it offers a…

Read more »