Investors love dividends. For long-term investors, dividends can account for more than half of total returns over time. While investors love companies with high dividend yields and those that can be expected to raise dividends in the future, there is a dark side of dividend investing. This is when companies start to get dividend yields that are just too high.
The dividend yields in certain spots in the broad retail, specialty retail and apparel sectors have reached a point that they should be sending out warnings signs to the investing community. It is just not normal for apparel and retailing companies to have dividend yields that are higher than many in pharmaceuticals, tobacco, utilities and telecom.
Now that the world of retail is being dismantled by Amazon and other emerging online trends, some retail stocks are getting to the point where their dividend yields will be viewed as at risk.
Companies with spotty earnings and in sectors that are being challenged are not exactly loved by Wall Street. It goes without saying that many aspects of broad retail, specialty retail and apparel companies are challenged and are not loved by Wall Street. It turns out that many of these companies with what feels like too-high dividend yields are also trading close to their 52-week lows while the broader market is challenging new highs.
24/7 Wall St. has screened for the dividends of the highest yielding retail (broad and specialty) and apparel companies in America. It is shocking to see how high some yields have reached. These dividends may not be at risk today, and they might not be at risk of being cut immediately, but longer-term these are reaching levels at which they will have become “buys of a lifetime” or they are “dangerous dividend traps” that lured in value investors.
Abercrombie & Fitch Co. (NYSE: ANF) was last seen trading up over 8% at $13.26 on renewed buyout speculation by private equity, but its $0.20 quarterly dividend is now about 6.4%. That is not normal to yield this much, based on its history, and this was over $70 per share as recently as 2011.
American Eagle Outfitters Inc. (NYSE: AEO) was trading up at $11.33, but its 52-week range is $10.56 to $19.55. Its dividend yield is now also over 4%.
Barnes & Noble Inc. (NYSE: BKS) was at $6.75, and its dividend of $0.60 per share (annualized) is higher than its past adjusted earnings and higher than its expected earnings. The brick-and-mortar retail bookseller business model was the first real target of Amazon in the past. Despite a $6.55 to $13.63 trading range over the past year, this was a $25 stock 10 years ago.
DSW Inc. (NYSE: DSW) has been unable to adequately satisfy investors with its discounted shoe-selling model. Trading at $16.58, it has a 52-week range of $15.98 to $26.22, and its dividend yield is nearly 4.5% at this point.