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Did You Fall For These 14 Big Dividend Duds?

Dividend stocks yielding 5%. What's not to like — especially when S&P 500 stocks are yielding less than 2%? Plenty it turns out.

All told, 14 S&P 500 stocks yielding 5% or more coming into the year, including retailer Macy's (M), energy company Occidental Petroleum (OXY) and real-estate stock Macerich (MAC), lagged the S&P 500 by 20 percentage points or more. That means instead of laughing all the way to the bank with your fat dividend checks owning these stocks, you've seen your money blow away.

So much for dividends being "safe."

Dividend Stocks Gone Wrong

Chasing yield has become a national pastime. Understandably.

The yield on the 10-year Treasury is just 1.91%. That's well below the high yield of more than 3% over the past 52 weeks. And forget about dividend yields. The S&P 500 yield is down to just 1.93%. That's even lower than the 2.23% yield it started this year at. And good luck getting any yield from a savings account.

That explains why investors might look to high dividend stocks as a solution. Coming into 2019, 36 S&P 500 stock paid lofty 5% dividend yields. Sign me up, right? Unfortunately, chasing yield this year ended up like it often does: Badly. Of those 36 high dividend stocks, 10 didn't just trail the market, they declined in value. That really stings all the more in a year where the S&P 500 soared 23%.

And that's where dividend chasers got hurt even more.

Dividend Stock Disaster: Macy's

It's no surprise department stores are struggling in an era of online shopping and even used clothing. But you might have been tempted to put up with some risk in this consumer discretionary play on Jan. 1, 2019. After all, Macy's dangled a carrot: A 5.07% dividend yield.

But those who went for the dividend sure paid for it. on Aug. 14, the company reported an adjusted quarterly profit of 28 cents a share. That missed views by 38%. Analysts now think Macy's profit per share will fall by a third in fiscal 2020 to $2.81.

Macy stock is now down a crushing 46.3% this year. That means you're down 69.6% relative to the S&P 500 by owning it. Hope you enjoyed that 5% dividend.

And if you liked 5%, Macy's stock is down so much its yield is now 9.4%. Feeling lucky?

Your Real Estate Dividend Stocks Aren't Safe Either

What were those crazy Macy's dividend investors thinking? Everyone knows real estate is a more stable source of dividends, right?

Actually, it turns out that four of the 14 high-dividend stocks that backfired are in the real estate sector. The most egregious example is Macerich, a Santa Monica, Calif.-based mall operator. Like many real estate stocks, Macerich paid a high dividend in early 2019: 6.9%. That's much higher than the 3.8% yield of the SPDR Real Estate Select Sector ETF (XLRE) in January.

But chasing that dividend hurt. While shares of the SPDR Real Estate Select Sector ETF rose 21.2% this year, Macerich's dropped 37%. Holding that stock for a dividend, you lagged the S&P 500 by 60%.

And if you think that's bad, look at energy stocks like Occidental Petroleum. Sure, you got a 5.1% dividend in January, but in November you're down 37%.

Dividend Stock ETFs Aren't An Easy Answer

Sure, you can reduce company-specific risk with ETFs. But it's not a quick solution, either.

The Vanguard High Dividend Yield ETF (VYM) yielded 3.4% in January. But for the extra 1.16% in yield, you've lagged the S&P 500 this year by 6.4%.

Going for growing dividends isn't much better. Yes, the SPDR S&P Dividend ETF (SDY) owns stocks with long histories of boosting dividends. But its 2.7% yield on Jan. 1, 2019 barely beats overall S&P 500's SPY stock's 2.3%. And the S&P Dividend ETF is up just 18% this year, trailing the S&P 500 by 5.4%.

So don't confuse dividends with safety. They're not the same thing.

S&P 500 High Dividend Stocks That Backfired This Year