Xerox (NYSE: XRX) seems like a cheap dividend stock on the surface. It's a Fortune 500 company that provides print and digital document products and services across 160 countries, its stock trades at just 11 times forward earnings, and it pays a high forward dividend yield of 4.3%. Xerox hasn't raised its payout since 2017, but it continued paying dividends throughout the pandemic, and spent just 53% of its free cash flow on those payments over the past 12 months. Its low valuation could also make it more appealing as the market rotates from growth to value stocks. Those points are all valid -- but I believe Xerox is still a high-yield trap, for five reasons. Image source: Xerox. 1. Anemic gains over the past decade Xerox's stock has trailed the S&P 500, in terms of price growth and total returns (which include its reinvested dividends), over the past ten years. Source: YCharts We shouldn't judge a stock based on its past performance alone, but Xerox's anemic returns indicate there's something wrong with its business model. 2. Declining free cash flow Xerox's trailing 12-month free cash flow, which feeds its dividends and buybacks, has also been declining over the past decade. Source: YCharts Those declines would have been even steeper if it hadn't sold its 25% stake in its joint venture with Fujifilm (OTC: FUJIY) for $2.3 billion in 2019. Xerox expects to generate "at least" $500 million in free cash flow in fiscal 2021, up from $474 million in 2020, but it will benefit from an easy comparison to the pandemic last year. 3. Weak core businesses Xerox splits its business into two main segments: equipment sales, which mainly come from printers and copiers; and post-sale revenue, which includes its installation, maintenance, financing, and add-on service fees. It generated 78% of its revenue from the post-sale business last year, and the rest from its equipment sales. Here's how those two businesses fared over the past two years and the first quarter of 2021. Revenue Growth (YOY) FY 2019 FY 2020 Q1 2021 Equipment (5.3%) (24.2%) 17.2% Post-Sale (6.4%) (22.1%) (13.4%) Total (6.2%) (22.5%) (8.1%) Data source: Xerox. YOY = Year-over-year. Xerox faces two secular challenges. First, copiers and printers have long upgrade cycles, and the rise of paperless offices is curbing demand for new equipment. Second, Xerox sells its copying and printing supplies at higher margins than its hardware, but it faces fierce competition from generic supplies. Xerox is trying to counter those headwinds by selling more high-end devices and subscription plans for its supplies and services. Unfortunately, its rival HP (NYSE: HPQ) is also adopting similar strategies. 4. Treading water by cutting costs Those challenges have consistently squeezed Xerox's gross margins. Gross Margin FY 2019 FY 2020 Q1 2021 Equipment 32.6% 27.4% 27.9% Post-Sale 42.5% 40.3% 38% Total 40.3% 37.4% 35.7% Data source: Xerox. YOY = Year-over-year. In the second half of 2018, Xerox launched an initiative called "Project Own It" to cut costs by $1.5 billion over the following three years -- but those efforts didn't significantly boost its operating margins. Xerox's adjusted earnings, which rose in 2019 after the Fujifilm deal, also tumbled in 2020 before rebounding slightly (with some support from buybacks) in the first quarter of 2021. Metric FY 2019 FY 2020 Q1 2021 Adjusted Operating Margin 13.1% 6.6% 5.2% EPS Growth (YOY) 23.3% (60.3%) 4.8% Data source: Xerox. YOY = Year-over-year. 5. It needs to make bold moves to grow again Xerox is stuck in the same rut as many aging tech companies: Its revenue growth is stagnant and it's relying too heavily on cost-cutting measures and buybacks to boost its earnings per share. Xerox needs to make some bold moves to start growing again. Activist investor Carl Icahn previously tried to force Xerox to merge with HP, which could have generated operating efficiencies and synergies as a much larger printing company, but Xerox abandoned its $35 billion hostile bid a year ago. It's unclear if Xerox will pursue new acquisitions to boost its revenue, or spin off more businesses -- as it previously did with its business services unit Conduent (NASDAQ: CNDT) and the Fujifilm joint venture -- to generate more cash for buybacks and dividends. Stick with other dividend stocks All these challenges could make Xerox a disappointing dividend stock. It won't slash its dividend anytime soon, but its stock will continue to tread water for the foreseeable future. Investors should stick with more promising dividend stocks that offer a better balance of growth and income in this fickle market. 10 stocks we like better than XeroxWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Xerox wasn't one of them! That's right -- they think these 10 stocks are even better buys. See the 10 stocks *Stock Advisor returns as of May 11, 2021 Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.Source