These stocks prove yield isn’t everything.
There’s an old saying that all dividend chasers should learn: The simplest way for a stock’s dividend yield to double is for its share price to be cut in half. It’s a trick of math. Dividend yield is the annual payout divided by current share price. In a perfect world, a great stock pays a big dividend and increases the numerator in that equation. But many times, a stock simply keeps its payouts constant and instead sees the denominator decline dramatically — thus increasing yield. Investors seek stocks with high yield to provide steady income or hedge against volatility. But as these troubled stocks show, yield isn’t everything.
L Brands (ticker: LB)
After consistently disappointing results, some investors expected LB stock to get back on track in 2018 as it returned to modest growth. However, this parent company of Victoria’s Secret, Bath & Body Works and PINK continues to face a long-term decline thanks to its fading brand appeal and the rise of e-commerce competition. Investors have been quick to sell LB stock despite stabilizing revenue and an above average dividend.
Year-to-date performance: -50 percent
Current yield: 6.5 percent
General Electric Co. (GE)
General Electric has given dividend investors heartburn for a decade, starting with its fall from grace during the financial crisis. But despite efforts to streamline and simplify this cumbersome industrial giant, GE was forced to make its second dividend cut in a decade earlier this year. At one time, GE was considered a solid stock for widows and orphans, but performance and dividends have been so unreliable that few trust this company any longer.
Year-to-date performance: -25 percent
Current yield: 3.5 percent
Invesco Ltd. (IVZ)
Invesco is an asset manager and exchange-traded fund provider that you think would be raking in the money. Many financial stocks are rallying on less regulation and tax cuts — particularly those catering to investors with deep pockets after a roughly 10-year rally for stocks. But Invesco is caught between a rock and a hard place, with a bunch of smaller ETFs that cannot compete with large providers like State Street Global Advisors or Vanguard. With fee structures constantly declining, only the biggest managers can survive this era of low margins and IVZ is feeling the pain.
Year-to-date performance: -30 percent
Current yield: 4.7 percent
Coty (COTY)
Cosmetics company Coty, the brand behind Covergirl, held a successful IPO in 2013 when the firm raised about $1 billion to help fuel future growth. That growth seemed to be in evidence with shares rising from about $15 to more than $30 in less than two years. Now, shares are near an all-time low, below even the first price when COTY entered public markets. Legacy cosmetic companies and upstarts like Mac and Sephora are tough competitors, and next year’s revenue is forecast flat or down slightly.
Year-to-date performance: -35 percent
Current yield: 3.5 percent
General Mills (GIS)
With big brands like Cheerios cereal, Yoplait yogurt and Betty Crocker baked goods, it’s difficult to imagine General Mills going away. However, this company has little growth ahead of it as its mature brands are already well-known. Worse, consumers are moving away from traditional packaged foods to eat fresher and healthier options. While profits are consistent, investors are worried GIS stock has little upside in the near future and have consistently been sellers in 2018.
Year-to-date performance: -25 percent
Current yield: 4.3 percent
Buckeye Partners (BPL)
Perhaps not as well-known as other names on this list, Buckeye Partners is worth noting as a dividend investment that can really hurt your portfolio. A master limited partnership, BPL is a pipeline company that transports petroleum products around the U.S. The idea is that this business is super stable, and as a partnership has a guarantee of big dividends. However, Buckeye has gone deep into debt as it expanded and its credit rating is deep into “junk” territory. The yield is theoretically great, but it’s important to keep in mind where the money comes from to pay these distributions.
Year-to-date performance: -30 percent
Current yield: 14.8 percent
Cummins (CMI)
Multinational engine company Cummins is a great example of how current talk of a trade war can weigh on U.S. stocks that are big players in global manufacturing. Cummins makes engines used in automobiles, heavy equipment and other applications and thus is a key exporter to the European Union and China. All the talk of a trade crackdown has really hurt this Indiana-based business, and with no easing in the rhetoric, investors should continue to see pain for CMI.
Year-to-date performance: -20 percent
Current yield: 3.3 percent
AT&T (T)
It’s easy to understand AT&T’s appeal. It’s one of the oldest telecommunications companies, and has raised its dividend at least once a year for 33 consecutive years. People will continue to use their cell phones and broadband internet access heavily no matter the broader economic trends or their personal income level. However, there’s not a lot of growth here and investors continue to worry about the $86 billion debt load it took on with the Time Warner acquisition. This makes cash flow — and perhaps even the dividends — less certain going forward.
Year-to-date performance: -20 percent
Current yield: 6.1 percent
Ford Motor Co. (F)
Another victim of the trade war, Ford does a lot of overseas business that could be in jeopardy thanks to protectionist policies led by the White House. But that’s not the only problem for Ford, as the U.S. auto industry is coming off two consecutive record years and much of the demand has been sated. That makes it harder for year-over-year comparisons, with Ford tracking flat revenue at best both for this fiscal year and next. The dividend is decent, but uncertainty and a lack of growth has investors selling shares instead of buying.
Year-to-date performance: -20 percent
Current yield: 5.3 percent
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