Is This High-Yield Dividend Stock a Bargain or a Falling Knife?

Maxar Technologies Ltd. (TSX:MAXR)(NYSE:MAXR) stock has taken a beating over the past year, and its high dividend may be at risk.

| More on:

Maxar Technologies (TSX:MAXR)(NYSE:MAXR) plunged 50% over the past week as of close on January 11. Shares have now fallen 90% year over year. The stock hit a 52-week low of $6.69 last week, which is stunning compared to its 52-week high back in January 2018 of $79.91.

Maxar stock was hit hard in the summer of 2018 after a short report from Spruce Capital Management put its value seriously into question. The report alleged that Maxar’s accounting hid weak cash flow, which would negatively impact its balance sheet going forward. The company issued a rebuke, but the report was soon vindicated when Maxar released its third-quarter results. Maxar reported a $432 million net loss in Q3 2018, $383.6 million of which it attributed to impairment losses and inventory obsolescence.

The space systems GEO Comsat business was a drag on earnings, and in the report Maxar indicated that it could bring in additional funds by selling its satellite business. Spruce Capital estimated that shares would fall to an intermediate range of $20-25. This has turned out to be an optimistic forecast.

Last week, Maxar revealed that one of its top revenue-producing satellites had failed just over two years after launch. Maxar has said that it will attempt to recover as much of the $85 million in revenue the satellite produced, but that it will likely only be able to offset between $10 million and $15 million in lost revenue. Maxar will seek full recovery of $183 million for the insured WorldView-4 satellite.

Things are looking grim in early 2019, and the pressure will be on Maxar to take Spruce’s summer 2018 advice and cut its high dividend. Currently, Maxar offers a quarterly dividend of $0.37 per share. This now represents a sky-high 19% yield.

Relying on Maxar’s technicals over the past years has been a fool’s errand, especially going by its Relative Strength Index (RSI). Maxar stock fell into oversold territory immediately after the short report as well as in October and December. As of close on January 11, Maxar stock boasted an RSI of 23, indicating that it is once again oversold as we hit the mid-point mark in January.

The loss of the WorldView-4 satellite is a tremendous blow to Maxar in large part due to the timing. Shares have been a lasting temptation since the short report, but again and again shareholders have been burned. Maxar still has a revenue base from which to bounce back from after a myriad of disasters, even as it hints at a decoupling from one of its previously lucrative satellite segments.

Risk-averse investors should plainly look elsewhere in this volatile market. However, for those targeting rebound candidates in early 2019, Maxar is worth monitoring as it prepares to release its fourth-quarter results in February. Income investors, however, should be wary after this substantial loss in revenue. A dividend cut may be on the horizon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. Maxar is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »