3 Dangerous Stocks – Prospect Capital (NASDAQ:PSEC), Frontier (NASDAQ:FTR) and BioPharma (NASDAQ:PDLI)
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While there are some stocks that may raise green signals for investors, there are others that are downright dangerous to invest in. Investors seem to favor stocks that apparently have higher dividend yields. However, sometimes these apparently profitable stocks may prove to be unfavorable picks for investors in the long run. According to analysts, the three stocks that have topped the dangerous category charts are listed below:
Prospect Capital (NASDAQ:PSEC) may seem a normal firm upfront, and may seem to have enough capital to pay dividend, its weird strategies seem to raise eyebrows. According to analysts, the company has a set pattern to declare its monthly distributions. These figures are declared three months at a time, and that to beforehand. For instance, when these statistics were declared in May, the shareholders had a complete knowledge of the amount of dividend income they will receive come the end of 2014.
However, in the recent revelations by the company, there was no declaration of dividend figures. The company hasn’t done much to assure the investors and has gone on to declare the January 2015 dividend.
Furthermore, the company continues to sell shares lower than the net asset value. This signals red as the company has proclaimed in the past that this will happen only in extreme situations.
Frontier Communications (NASDAQ:FTR) is another company that may not be an ideal choice to invest capital in at the moment. The company pays a higher yearly dividend of 5.8%, which is more than what most other of its rivals give their shareholders.
However, the company has failed to maintain a monotony in the amount of dividend it pays the investors and has decreased the quarterly figure on two occasions in the past. This occurred once in 2010, when dividend declined to $0.1875 to $0.25, and then again in 2012, where a decrease from $0.1875 to $0.10. Currently, the company pays per annum dividend of $0.40. The company’s non-GAAP earnings adjusted at only $0.26 in 2012 and $0.24 in 2013 on per share basis. The company is expected to make $0.20 on a single share, which gives it a 200% payout ratio.
In an effort to draw away the attention from this issue, the company has emphasized on the FCF payout, which was 46% in 2013. However, the figure has dropped 4% in previous two years and dipped 17% over a year. The consumer revenue went down 0.5%, where it ended up losing 18,700 of its valued consumers. These issues raise a huge red flag.
PDL BioPharma (NASDAQ:PDLI) is another company that may seem good on the surface, but the underlying story is quite different. The apparent 7.6% yearly dividend, in addition to payout ratio at 31% may seem like a dream; it could just be the opposite of that in actuality.
The 75% PDL that it generates from Queen et al. patent will become a distant dream once the patent expires in December. Hence they could be headed to liquidation of assets if they fail to acquire a source of income.