There are plenty of investment tips out there that could make you a fortune by the time it comes to retirement. I looked at one way that shrewd stock pickers can build a mighty little nestegg in my recent piece titled ‘Have £2,000 to invest? This FTSE 100 growth and dividend stock could help you to retire early.’
That said, there’s no shortage of shares on the Footsie whose vast dividend yields may well become a thing of the past, leaving your retirement fund with a dirty great black hole in it. Some of the shares that you’d best avoid are laid out below.
Gassed out
I’ve mentioned it time and again but Centrica (LSE: CNA) is, in my opinion one of the riskiest share selections on the FTSE 100.
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Its risks are two-fold. Its Centrica Energy division is currently reaping the fruits of robust crude oil prices, but this favourable landscape may not last as production ramp-ups in major nations (like the US, Canada and Brazil) threatens to swamp the market with excess supply in the years ahead.
Right now, my major worry is the rate at which Centrica is losing customers to the competition, a trend that is hastening each and every time British Gas decides upon a fresh tariff hike. What’s more, by the time you come to retire, the energy supplier may well find itself in government hands.
It may be cheap, but not even a forward P/E ratio of 11.2 times, nor a chunky 7.9% dividend yield, would encourage me to invest in Centrica today.
Dire driller
Anglo American is another appetising value pick on paper, the iron ore miner offering a prospective P/E multiple of 9.5 times AND a vast 4.5% dividend yield.
This low rating is a true reflection of the company’s risks, however. Iron ore prices continue to wildly oscillate, and I remain convinced that the only way is down from here. Indeed, RBC Capital predicted a sharp cool-down from the third quarter as demand for the steelmaking ingredient from China loses pace.
City analysts are expecting a dividend reduction at Anglo American in 2018 and another one next year, reflecting the likelihood of declining iron ore values and thus further slippage in the company’s profits column.
Sales still sliding
Kingfisher is another dirt-cheap share that I’m likely to continue avoiding. The DIY giant has seen sales steadily slip in the UK and Ireland, culminating in the 5.4% duck in like-for-like revenues in this critical region between February and April. And conditions are unlikely to improve for the B&Q owner as declining shopper confidence heaps more and more pressure on its top line.
These difficulties are not confined to Britain, however, as the sales slippage over in France is also showing no signs of letting up — like-for-like sales here ducked 3.9% in the last quarter.
I’m not convinced that Kingfisher has what it takes to rectify the troubles that are driving sales through the floor either. So I’m not tempted by its low forward P/E ratio of 12.4 times and dividend yield of 3.6%.
