We recently published a list of 12 52-Week Low Dividend Stocks To Avoid. In this article, we are going to take a look at where Cenovus Energy Inc. (NYSE:CVE) stands against other 52-week low dividend stocks to avoid.
Navigating the stock market can feel like sailing through stormy seas when certain stocks hit their 52-week lows. The dip may seem like a golden opportunity to some investors, but stocks that have dropped significantly—especially those with a 12-month share price decline of 25% or more—may carry hidden risks.
In this article, we will explore 12 dividend stocks ranked by their 12-month share price decline, which serves as a key indicator of potential problems, including financial instability or market pressures that could turn what seems like an opportunity into a trap.
READ ALSO: 14 Best Performing Dividend Stocks To Buy Now
However, even the stock with a highly appealing dividend yield may have to be avoided when trading at its 52-week low. This leads to the question – “Is a 52-week low a red flag?” And the answer is yes. Stocks reaching their 52-week low tell us they are experiencing declining revenues, management challenges, or broader industry downturns. The scenario is worse if it’s a dividend-paying stock. Inflated dividend yield masking deeper problems has frequently been seen in declining stocks to make them attractive to investors.
It shows that the seductiveness of the high dividend yields can also mean trouble. Investors focusing on the dividend yield rise sometimes forget to see the declining stock price, thereby falling into a trap – the phenomenon also called the dividend trap. For instance, in one of their recent articles, Barron pointed out a few food companies that were seeing their stock prices decline due to various challenges. Barron reported that these declines were making their high dividend yields less appealing.
The unsuspecting dividend trap does not mean that investors should focus on growth stocks instead of dividend stocks. The latter remains a haven for investors looking for stable income and capital appreciation. However, it is essential for investors looking for dividends to prioritize quality over sheer yield. Focusing on the companies’ financial stability, consistency of their earnings growth, and sustainability in their payout ratios can potentially lead the investors to a more reliable return in the long term. When stressing the importance of quality investing, Bloomberg also noted that growth companies trading at unreasonably high values can eat into future returns, even if their growth expectations are realized, and hence advocating for quality investing, where identifying the strong fundamentals of the companies takes priority.
In this regard, as we venture into our article and list out 12 dividend stocks currently at their 52-week lows, we will be focusing on the fundamentals of the company and the reasons behind their declines to provide the investors with an opportunity to make informed investment decisions instead of falling into a dividend trap.
The allure of high dividends may be strong, but we must be thoroughly sure of the underlying company’s health. Remember that a high yield from a sinking ship won’t keep us afloat.
Our Methodology
We used a screening process to compile our list of 12 dividend stocks with a 52-week low. The stocks are ranked based on their 12-month share price decline, with those that have experienced the largest declines at the top. We also focused on stocks with a minimum dividend yield of 3%, ensuring they remain viable dividend-paying stocks for consideration. Primarily, we included stocks with a decline of at least 25% in their share price over the past 52 weeks, indicating the continuous downward pressure during the year. By setting the dividend payout ratio at 90% or less, we filtered out stocks with excessively high payout ratios, which signals overcompensation. We limited our analysis to companies with a market capitalization of at least $1 billion to remain focused on established enterprises. The stocks in our list are ranked based on a 12-month share price decline, thereby solidifying our list with data reasoning. We additionally used hedge fund portfolios from our Insider Monkey database to report to our readers how strongly hedge funds back the stocks.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A fleet of oil tankers at sea, representing the global reach of a crude oil supplier.
Cenovus Energy Inc. (NYSE:CVE)
52-week Decline as of March 7: 28.67%
Dividend yield: 3.98%
Number of Hedge Funds: 39
Cenovus Energy Inc. (NYSE:CVE) is a Canadian integrated oil and natural gas company. Their business operations include oil sands production, refining, and marketing. The company benefits from a diverse asset portfolio and cost-efficient operations. It holds third position as the largest crude oil and natural gas producer and second position as Canada’s largest refiner and upgrader.
Cenovus Energy Inc. (NYSE:CVE) is ranked 12th on our list, reflecting a 28.67% decline over the past year. Headwinds such as weak natural gas prices impacted the production volumes through the incompletion of some gas-weighted wells, which had a poor reception among investors, resulting in the inclusion of stock in the worst 52-week stock to be avoided. Additionally, the EPS of $0.05 missed the anticipated $0.18, further causing the decline in the stock’s value. However, the hedge fund activity remains stable, with 39 funds from the Insider Monkey database holding stakes in the company, as of Q4 2024.
Cenovus Energy Inc. (NYSE:CVE) offers a dividend yield of 3.98%. The payout ratio of 48.80% indicates a balance between returning capital to shareholders and maintaining reserves for future operations. Analysts have given the company a Buy rating, with a 1-year median price target of $20.37, representing a substantial 59.87% upside. Despite this long-term growth potential, the near-term outlook remains uncertain.
Overall, CVE ranks 12th on our list of 52-week low dividend stocks to avoid. While we acknowledge the potential for CVE as an investment, our conviction lies in the belief that some AI stocks hold more significant promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVE but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
