“Safety first” should be the credo of every dividend collector. Otherwise, you could end up losing money even if you’re collecting quarterly distributions. Sure, it may be tempting to invest in HP (NYSE:HPQ) in a quest for high yield. However, after learning more about HP and the market in which it operates, you’ll probably decide to leave HP stock alone.
Just to avoid confusion, the electronics producer formerly known as Hewlett-Packard split in late 2015 into two separate companies. One of the two businesses, Hewlett Packard Enterprise (NYSE:HPE), provides technology solutions mainly for businesses. The other company, HP, primarily sells personal computers and printers.
On paper, HP’s dividend looks enticing. Don’t jump into a hasty trade, however, as there are warning signs surrounding HP — including, as we’ll discuss now, a legendary investor’s large-scale share sale.
Warren Buffett’s Company Exits HP Stock Position
Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) CEO Warren Buffett is known as the Oracle of Omaha. When he sells a stock, investors take notice. And when Berkshire divests its entire position in a stock, that’s an ominous sign.
Buffett often likes to buy dividend-paying stocks, and HP offers a forward annual dividend yield of 3.5%. Here’s an alarming development, though. Reportedly, Berkshire Hathaway sold all of its 22.85 million HP shares, valued at a whopping $687.64 million, by the end of 2024’s first quarter.
Now, I’m not telling anyone to sell HP stock just because Buffett did. One certainly might wonder, though, why Berkshire Hathaway would suddenly dump its entire HP share stake.
It’s noteworthy that Buffett is willing to forgo HP’s decent-looking upcoming dividend payout. Just maybe, there’s a reason to believe that HP’s dividend could be unsustainable.
HP and the Challenging PC Market
More important than a company’s dividend yield is the company’s future growth prospects. I’m not a mind reader, but I suspect that Buffett would concur with this idea.
After all, it will be difficult for HP to continue paying generous dividends if the PC market is distressed. To put it politely, it’s fair to say that the market for PCs is unclear in the near term.
Analyst firm Gartner reported a shocking 14.8% decline in the value of the PC market last year. It was, Gartner’s research showed, the worst year in the history of the PC.
What about early 2024? Evidently, HP CEO Enrique Lores felt compelled to acknowledge, “Demand has slowed down in commercial,” and “We believe the PC recovery could moderate in 2024 given lackluster demand.”
Besides, the numbers didn’t look good for HP in 2024’s first quarter. As it turned out, HP’s personal-systems sales declined 4.4% year over year to $8.8 billion. The company’s printer sales fell 5% to $4.4 billion.
HP Stock: Don’t Be a Yield Chaser
There’s an added element of risk, since HP is expected to release a quarterly earnings report later this month. Maybe there will be clear signs of a massive PC-market rebound — or maybe there won’t.
Perhaps Buffett just didn’t have a strong conviction in HP anymore and consequently sold his share stake in the company. That’s understandable, since a PC-market recovery isn’t guaranteed and neither is HP’s dividend yield. Therefore, whether you’re a Buffett follower or not, it’s wise to avoid HP stock for the time being.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
