Consider this a friendly reminder.

The highest-yielding stock in the S&P 500 Index, Pitney Bowes (NYSE: PBI), goes ex-dividend next week.

Although tempting, with an estimated yield of 12.3%, I recommend you avoid it like the plague.

Why? Because “highest” isn’t the only superlative on the company’s resume. So is “most,” as in the most dangerous dividend stock in the S&P 500.

[ad#Google Adsense 336×280-IA]Today, I’m going to prove it so that you don’t entertain the stupid idea of purchasing shares to earn a quick dividend or two.

Time is of the essence. So let’s get to it…

Beware of the Dividend Yield Trap

In a world where the average stock in the S&P 500 yields a scant 2.1%, it’s hard not to be lured in by a double-digit yield.

I assure you, though, if Pitney didn’t pay a dividend, you would ignore it completely.

No questions asked.

Consider this rap sheet of terrible fundamentals…

  • Four straight quarters of sales declines, including a 6.5% drop in the most recent one.
  • Plummeting net income, down 55.7% in the most recent quarter.
  • Roughly seven times more debt than cash on the balance sheet.
  • Almost $1 billion worth of debt maturing in the next two years.
  • Six out of seven business segments suffering sales declines and margin contractions.
  • A less than rosy outlook. In the latest conference call, CEO Murray Martin said, “We believe we are going through a critical period in the history of our company and our industry.” Management doesn’t sound too confident, huh?
  • An increasingly obsolete core business. For 90 years, the company’s bread-and-butter has been providing mail-processing machines, including postage meters, mail sorting equipment and other production tools. But then Al Gore invented the internet and we officially entered the Digital Age, rendering such products pretty much irrelevant.

The truth is, the only reason why Pitney sports such a sky-high yield is because the stock’s gotten clobbered.

After Pitney reported its third-quarter results last Thursday, which Morningstar politely described as “another challenging quarter,” the stock plunged to its lowest price since 1991, according to FactSet.

All told, shares are down about 40% over the last year.

After suffering such a precipitous drop, Pitney’s yield now hovers around 12%, compared to a five-year average of 5.9%. It’s not exactly safe, either, given the company’s dividend payout ratio of 82.4 over the last 12 months.

Of course, the DividendChannel.com is touting Pitney Bowes as the market’s “Top Dividend Stock” because of its “attractive valuation metrics and strong profitability metrics.”

How anyone takes these guys seriously is beyond me. And why Forbes keeps syndicating its content is even more unbelievable.

You’ll recall they’re the same dividend geniuses who pegged Radio Shack (NYSE: RSH) as a smart investment just a month before shares got clobbered and the dividend got suspended.

Bottom line: I warned you about the danger in Radio Shack. I’m doing it again with Pitney. Dividend investors beware!

Even if the company’s able to keep paying its dividend, future share price declines promise to more than offset any income earned. And that’s not a winning investment formula.

Safe investing,

Louis Basenese

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Source: Dividends and Income Daily