What do the S&P 500 stocks investors are selling off the most have in common? They used to have lofty valuations or don't pay a dividend.
All 10 of the worst S&P 500 stocks this year, including Netflix, EPAM Systems and Etsy, don't pay a dividend, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And all but two started the year at a nosebleed valuation trading for 30 times, or more, their profit over the past 12 months. In contrast, all ten of the year's top S&P 500 stocks pay a dividend.
The market's sudden rejection of pricey, dividend-less stocks reveals a shift. S&P 500 investors are now chasing after "cheap" value stocks paying dividends. Those factors are seen as offering safety in this tricky market.
"Stocks with low valuations and high dividend yields continue to outperform the most aggressively valued stocks that pay no dividend," said Bespoke Investment Management.
Looking At The S&P 500 Losers
It's getting uglier this year for the S&P 500. Nearly half the stocks in the index are down 10%, or more, this year already. And some by much more than that. And it's becoming crystal clear why investors are selling.
There's a near perfect correlation this year of stocks that pay dividends doing the best and those that don't pay any dividend suffering the most, Bespoke found. Specifically, the 20% of S&P 500 companies paying the highest dividends are up the most, roughly 2.4%, in April so far. Meanwhile, the 10% of S&P 500 stocks paying no dividends are down the most this month: 3.5%. Similarly, the S&P 500 stocks with the highest P-E ratios are down the most. "April has so far been a continuation of what we've seen for the past 12 months," Bespoke said.
The Netflix Debacle
Take Netflix. It's now the ugliest stock in the S&P 500 this year, falling more than 60%. But based on what investors are looking for now from stocks, it's not much of a surprise. The stock pays no dividend. And coming into the year, Netflix sported a lofty P-E of 54. P-Es normally don't matter to long-term successful growth investors. But in this market, it matters. And that's especially true when a former high-growth stock like Netflix stops growing. Netflix's profit is seen falling nearly 3% this year.
It's a similar story with the No. 2 worst S&P 500 stock this year: EPAM. The software development firm's shares are off nearly 60% this year. Like Netflix, EPAM doesn't pay a dividend. And coming into the year, EPAM sported a P-E higher than Netflix at nearly 93.
Again, in normal markets where S&P 500 growth stocks do best, P-Es and dividends don't matter much. But in a market of high nerves, investors like the comfort of cheap and income.
Worst S&P 500 Stocks This Year
None pay a dividend and most entered year with lofty valuations
| Company | Ticker | YTD stock % ch. | P-E coming into 2022 | Sector |
|---|---|---|---|---|
| Netflix | -64.7% | 54.3 | Communication Services | |
| EPAM Systems | -58.0 | 92.7 | Information Technology | |
| Etsy | -55.3 | 65.0 | Consumer Discretionary | |
| PayPal Holdings | -54.2 | 45.3 | Information Technology | |
| Ceridian HCM Holding | -45.2 | n/a | Information Technology | |
| Meta Platforms | -45.1 | 24.1 | Communication Services | |
| Align Technology | -44.5 | 70.8 | Health Care | |
| Moderna | -44.5 | 15.2 | Health Care | |
| IPG Photonics | -44.1 | 35.4 | Information Technology | |
| Match Group | -41.7 | 70.3 | Communication Services |
