What good is an S&P 500's company's plump dividend if its stock price collapses? Not much.
Seven S&P 500 stocks with juicy 5.5% dividend yields or higher, including consumer staple Walgreens Boots Alliance, Crown Castle and Verizon, dropped so much this year they already erased their annual dividends, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Additionally, all these stocks are rated a "hold" or lower by analysts — not exactly a resounding endorsement for the future.
Such reversals are a reminder of the dangers of chasing yield — especially amid rising interest rates. Pick the wrong high-dividend stock and you can see all the income you expected for a whole year essentially evaporate in months. Such stocks also highlight why so many investors are simply holding cash in funds paying 5% or more in some cases.
"With real cash yields moving into positive territory, investors may have begun to ponder if now is the time to increase cash holdings," said Veronica Willis, Global Investment Strategist at Wells Fargo Investment Institute.
S&P 500 Dividends More Trouble Than Worth
Shockingly, dividend paying stocks are shedding wealth faster than they can pay it out this year. Watching dividends get completely wiped out by falling stocks is more common than you might think.
Currently, 398 companies in the S&P 500 pay dividends. And of those, 161 — or more than 40% — have fallen so much this year they've completely negated the yields.
And it's not just a few unlucky stocks. The SPDR S&P Dividend ETF yields 2.6%. That's nearly double the 1.4% paid by the S&P 500. But here's the problem. Shares of the SPDR S&P Dividend ETF are down 2.8% this year — leaving investors with a 0.2% total loss. The S&P 500, in contrast, is up 15.8% on top of the 1.4% dividend for a 17.2% total return.
But resisting some plump dividends is tough.
Don't Let The Giant Yield Fool You
When it comes to the siren's call of dividends, you'll want to beware Walgreen Boots Alliance.
The drugstore chain is famous for its lucrative 7.6% dividend yield. And it's in the drugstore and pharmacy business that's relatively stable and dominated by just a few companies with physical locations. Nonetheless, shares of Walgreens Boots are down 33% this year so far, leaving investors with a total loss of 25.4% even factoring in the giant dividend.
Intense competition from online rivals like Amazon.com and CVS Health eats away at the company's profit. Analysts think the company's adjusted profit per share will fall more than 20% this year and another 3% in 2024.
Another classic example of a dangerous dividend is Crown Castle, an operator of wireless cell towers and fiber optics cables. The company's typically stable business affords it to pay a yield of 6.3%. That's the good news. The bad news is the stock is down 26.4% this year, leaving investors with a total loss of more than 20%. Additionally, the business isn't looking so stable lately. Analysts think its adjusted profit per share will drop 6.2% in 2023 and another 10% in 2024.
Analysts are increasingly warning investors of the dangers of chasing yields. Morningstar U.S. Market Strategist Dave Sekera is cautioning investors against two high dividend paying S&P 500 stocks: International Business Machines and Seagate Technology.
IBM yields 4.6% and the price is up 3.7% this year. And Seagate pays 4.3% and it up 25%. But Sekera says both companies aren't growing, which makes them not worth the yield.
"I'd rather invest in stocks with a better growth profile even if it offered a lower dividend," he said.
High-Yield S&P 500 Stocks In The Red For The Year
All rated "hold" by analysts, too
| Company | Symbol | YTD ch. | Yield | Total loss | Sector |
|---|---|---|---|---|---|
| Walgreens Boots Alliance | -32.6% | 7.6% | -25.0% | Consumer Staples | |
| Crown Castle | -26.4 | 6.3 | -20.1 | Real Estate | |
| Huntington Bancshares | -21.8 | 5.7 | -16.1 | Financials | |
| Dominion Energy | -20.2 | 5.5 | -14.7 | Utilities | |
| Lincoln National | -17.3 | 7.1 | -10.2 | Financials | |
| 3M | -13.2 | 6.1 | -7.1 | Industrials | |
| Verizon Communications | -14.8 | 7.8 | -7.0 | Communication Services |
