Everyone knows that chasing violent storms is risky for your life. But it turns out that yield chasing in the S&P 500 can be risky for your money.
Nine stocks in the S&P 500, including real estate play Vornado Realty Trust, consumer staples firm Altria plus AT&T, still suffered negative returns this year so far despite starting the year with astounding yields north of 4.5%, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
It's another reminder for investors that just because you invest in high yield stocks in the S&P 500 doesn't mean you're immune to losses. And that's a warning for many S&P 500 energy stock investors, too, who might think high dividends inoculate them from losing money.
S&P 500 Dividends: Not A Guaranteed Safe Haven
The commonly-held idea that dividend-paying stocks are soaring this year isn't a reality.
The SPDR S&P Dividend ETF is actually down 6.3% this year. So even if you add in the ETF's start-of-year yield of 2.6%, you're still down 3.7%. Yes, that's an improvement from the S&P 500's similarly calculated after-dividend loss of 15.1%, but it's still a loss.
In fact, making money on S&P 500 dividends is little more than a crapshoot. More than 40% of the 24 S&P 500 stocks that started the year yielding more than 4.5% are down in 2022 so far — even after adding in that annual yield. Chasing dividends is far from a safe bet.
AT&T's Blowup
AT&T remains a cautionary tale in many ways for S&P 500 investors. But lately, it's a warning of the dangers of chasing yield.
Shares of the once unassailable telecom giant plunged roughly 7% Thursday to 18.92 following reports of disappointing cash flow. That's a big problem for a stock where the No. 1 draw was the yield of 8.5% at the beginning of the year.
But now, it's worse. The stock is down 23% this year. That means even if you add in the beginning-of-the-year dividend yield, you're still down 14.6% this year. That's not much better than had you just owned the S&P 500.
AT&T Isn't The Only Dividend Disaster
You don't need to look far to see more examples of seemingly too-good-to-be-true dividends in January not paying off.
Just look at Vornado Realty, a New York based landlord that specializes in leasing properties in urban areas. The stock kicked off the year yielding an appealing 5.1%. But here's the problem. Shares of the real estate company are down nearly 30% this year. That leaves investors who bought the S&P 500 stock at the start of the year with an after-dividend loss of nearly 25%.
Even dividend darling Altria isn't panning out as many would have hoped. It's true that the tobacco company yielded a whopping 7.6% coming into 2022. But the stock is down nearly 10% this year. And that means investors who bought in during January are actually down 2.2% on the year.
It's important to point out some S&P 500 high-dividend stocks have been stellar. Shares of Coterra Energy are up more than 47% this year. And that's on top of its 6.3% dividend yield coming into the year.
But even this year, it's almost as easy to get burned by yield as not.
Money-Losing, High-Dividend S&P 500 Stocks
All are down this year, even after adding in their 4.5%+ dividends at the start of the year
| Company | Ticker | Dividend yield | Stock YTD % ch. | Sector | Net ch. YTD (stock loss + dividend) |
|---|---|---|---|---|---|
| Vornado Realty Trust | 5.1% | -29.7% | Real Estate | -24.6% | |
| AT&T | 8.5 | -23.1 | Communication Services | -14.6 | |
| Lumen Technologies | 8.0 | -16.7 | Communication Services | -8.8 | |
| Iron Mountain | 4.7 | -9.7 | Real Estate | -5.0 | |
| Dow Inc. | 4.9 | -9.4 | Materials | -4.4 | |
| PPL | 5.5 | -9.4 | Utilities | -3.9 | |
| Verizon Communications | 4.9 | -8.3 | Communication Services | -3.3 | |
| Altria Group | 7.6 | -9.7 | Consumer Staples | -2.2 | |
| LyondellBasell Industries | 4.9 | -5.6 | Materials | -0.7 |
