Beware the dividend trap.
When investors look for dividend stocks, often they focus on yield. However, it’s important to remember that isn’t the only factor — because plenty of stocks have ostensibly generous payouts, but are at risk of seeing their share price steeply decline. After all, what good is a dividend of more than 4 percent if your initial investment slides 40 percent or more? Don’t fall into the trap of thinking all dividend stocks are low-risk and yield is all that matters. As these 10 stocks prove with their performance from January through June, you can still lose a lot of money if you buy the wrong companies in the S&P 500 index.
Altria Group (ticker: MO)
A host of factors have been working against tobacco giant and Marlboro parent Altria in 2018, including ongoing concerns about federal regulations, declining smoking rates and fears of competition after British American Tobacco (BTI) acquired Reynolds American in a $49 billion deal to create a massive combined threat to its business. The dividend remains generous, but shares have been stuck in rut for the last several months.
First-half performance: -20 percent
Current yield: 5 percent
General Electric Co. (GE)
GE has suffered mightily in the last year or so, including its second dividend cut in 10 years and an unceremonious removal from its century-old perch in the Dow Jones industrial average. While much fault was placed on its banking arm during the financial crisis, the truth is that its core industrial operations have been struggling for years. The industrial giant continues to right-size itself and restructure its business, but shareholders have seemingly lost patience after chronic underperformance and mismanagement.
First-half performance: -22 percent
Current yield: 3.8 percent
Philip Morris International (PM)
A separate company from Altria, the internationally focused Philip Morris also faces similar pressures thanks to declining smoking rates and the pressures of competition. Weak earnings and analyst downgrades have reinforced the negativity around PM stock, and recent announcements of slowing growth in Asia hints that these problems may not be short-lived. The dividend yield is among the highest on Wall Street, but the risks of holding PM stock are high, too.
First-half performance: -23 percent
Current yield: 5 percent
Cummins (CMI)
Global engines and machinery giant Cummins had been humming along before 2018, but tariffs and talk of a trade war have taken a serious bite out of the business. It’s not just politicking, either, with a recent Wall Street Journal report noting that the company is actually paying a tariff to import engines into America from its own China facilities. There’s a real cost for CMI stock associated with these protectionist policies, and it shows in the share price.
First-half performance: -25 percent
Current yield: 3.2 percent
Principal Financial Group (PFG)
The financial sector has softened a bit in 2018, as doubts over what the Federal Reserve should and will do regarding interest rate increases this year. Furthermore, banks are coming off a fantastic 2017 where less regulation in Washington and corporate tax cuts fueled big-time gains. PFG is particularly affected by this trend thanks to challenges on both the top and bottom lines. Amid macro headwinds like this, you can’t afford to miss the mark and reinforce the negativity, and PFG has suffered as a result.
First-half performance: -25 percent
Current yield: 3.8 percent
General Mills (GIS)
In the age of fresh and healthy eating, it has been really hard for processed foods giant General Mills to break out of its rut. Sure, it’s got stable brands like Cheerios cereal and Yoplait yogurt. But there’s not growth in these established product lines, and its other offerings, including Totino’s pizza rolls, Fruit by the Foot snacks and Betty Crocker baking products just aren’t in line with consumer tastes. Shares have struggled to move higher for a few years, but in 2018 GIS has really started to retreat in earnest.
First-half performance: -25 percent
Current yield: 4.3 percent
Invesco Ltd. (IVZ)
In the age of exchange-traded funds and index funds, you would think financial firm Invesco would be in the right place at the right time. However, this nearly $11 billion company has struggled to make headway in a space dominated by behemoths like the Vanguard Group, iShares and State Street Global Advisors. The reality is that a small group of funds are getting all the inflows — and as the investing environment gets choppy, Wall Street seems to fear Invesco’s boutique funds may not have much staying power.
First-half performance: -27 percent
Current yield: 4.5 percent
Goodyear Tire & Rubber Co. (GT)
Investors have seen the automotive industry softening on the notion that demand was plateauing after back-to-back years of record U.S. auto sales in 2016 and 2017. But after President Donald Trump embarked on his trade war, things really got dicey and Goodyear has been stuck in a seemingly endless slide all year. Not only are investors pessimistic about the near future, but its dividend is increasingly less attractive as interest rates rise and the bond market offers comparable or better yields without the risk.
First-half performance: -28 percent
Current yield: 2.3 percent
Unum Group (UNM)
Insurance provider Unum was one of the financial companies that ran up dramatically in 2017 thanks to the promise of higher interest rates lifting performance. But the stock became just too darn expensive and struggled at the beginning of the year. That would have been bad enough, however, shares dropped 15 percent in short order in May after an earnings miss driven by serious challenges in its long-term care division. Throw in a below-average yield compared with other S&P 500 components and it’s hard to make a good case for UNM stock right now.
First-half performance: -32 percent
Current yield: 2 percent
L Brands (LB)
A case study in the idea that dividend yield isn’t everything, retail giant L Brands boasts a payout that is among the most generous on Wall Street as a percentage of its share price, but simply cannot keep that share price from collapsing in 2018. The parent of Victoria’s Secret, Bath & Body Works and PINK, its brands have fallen out of favor with consumers and are suffering mightily amid e-commerce competition in a digital age. The yield may be nice at present, but if challenges keep up, LB may be in danger of a cut in the near future.
First-half performance: -38 percent
Current yield: 6.5 percent
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10 Worst S&P Dividend Stocks in the First Half of 2018 originally appeared on usnews.com
