3 Dividend Stocks Balancing on a Razor’s Edge

Why Cash Flow Alone Isn’t Enough

Although robust cash flow often signals financial health, it doesn’t always guarantee strong investment returns. Some companies with significant cash reserves may still face issues such as poor spending efficiency, declining demand, or weak market positioning.

StockStory aims to help you identify companies with genuine growth potential. With that in mind, let’s look at three cash-generating businesses you might want to steer clear of—and highlight some more promising alternatives.

Regal Rexnord (RRX)

Recent Free Cash Flow Margin: 8.8%

Based in Milwaukee, Regal Rexnord (NYSE:RRX) specializes in power transmission and automation solutions for industrial clients.

Concerns About RRX

• Lack of organic revenue growth over the past two years suggests the company may need to rely on acquisitions to expand.
• Earnings per share have trailed industry peers, growing just 2.6% annually in the last two years.
• A modest 4.4% return on capital points to challenges in uncovering profitable growth opportunities, and declining returns indicate that previous profit drivers are fading.

Currently, Regal Rexnord trades at $223.46 per share, with a forward P/E ratio of 20.5.

Kennametal (KMT)

Recent Free Cash Flow Margin: 5%

Kennametal (NYSE:KMT), which began by manufacturing hard tips for anti-tank projectiles during World War II, now supplies industrial tools and materials across multiple industries.

Why We’re Cautious on KMT

• The company’s products and services have faced headwinds, with annual sales declining by 1.1% over the past two years.
• Stagnant organic sales suggest Kennametal may need to pursue strategic changes or acquisitions to accelerate growth.
• Earnings per share have increased by only 1.9% annually, underperforming the sector average.

Kennametal is priced at $39.30 per share, with a forward P/E of 16.

Verizon (VZ)

Recent Free Cash Flow Margin: 14.6%

Verizon (NYSE:VZ), originally established as Bell Atlantic in 1984 after the Bell System breakup, is a leading provider of telecommunications and internet services.

Reasons to Consider Selling VZ

• Over the past five years, annual sales have grown by just 1.5%, lagging behind consumer discretionary peers due to the company’s large revenue base, which makes incremental growth challenging.
• Free cash flow margins are expected to remain stable, offering limited upside.
• Returns on capital continue to decline from already low levels, reflecting ineffective investment decisions by management.

Verizon’s current share price is $49.83, equating to a forward P/E of 10.1.

Top Stocks for Any Market Environment

This year’s market rally has been driven by just four stocks, which together account for half of the S&P 500’s gains. Such concentration can be unsettling for investors. While many flock to these popular names, savvy investors are seeking out high-quality companies that are overlooked and undervalued.

Discover our handpicked selection in the Top 5 Growth Stocks for this month. These high-quality picks have delivered a remarkable 244% return over the past five years (as of June 30, 2025).

Our 2020 list featured now-prominent companies like Nvidia, which soared 1,326% from June 2020 to June 2025, as well as lesser-known firms such as Exlservice, which achieved a 354% five-year return. Let StockStory help you find your next winning investment.