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.

Gap Inc. (NYSE: GPS) was trading at $22.25, and its dividend yield is now over 4.1%. Gap has been dead money for years now, and its 52-week range is $17.72 to $30.74.

Guess? Inc. (NYSE: GES) most recently approved a quarterly cash dividend of $0.225 per common share and, despite a loss projection, that would be a yield of right at 9%, if it is sustained at a $10 share price. Guess offered up earnings guidance for this current year in the range of $0.28 to $0.40 per share, so that $0.90 dividend is a head scratcher. Guess shares have a 52-week range of $9.56 to $18.68.

Nordstrom Inc. (NYSE: JWN) has found out the hard way that even luxury apparel is not immune to online and omnichannel sales. With shares at $41.25, its dividend yield is now up to about 3.6%. Nordstrom’s 52-week range is $35.01 to $62.82, and this was an $80 stock as recently as 2015.

Pier 1 Imports Inc. (NYSE: PIR) traded down at $5.10, in a 52-week range of $3.73 to $9.68. Its dividend yield is roughly 5.5%. Pier 1 shares used to be above $20, as recently as 2013.

Staples Inc. (NASDAQ: SPLS) was trading at $8.73, and the office supplies giant has a 52-week range of $7.24 to $10.25. Its yield is now about 5.5%. Staples is on the heels of a failed merger, and it is having a hard time finding any avenues of growth. Now with a $5.7 billion market cap, Staples was a $25 stock back in 2010.

Target Corp. (NYSE: TGT) was last seen at $54.15 and its dividend yield is about 4.4%, based upon a $2.40 annualized dividend. Target has a 52-week range of $52.72 to $79.33, and this was an $80 stock as recently as early 2016.

Wal-Mart Stores Inc. (NYSE: WMT) may be the one major retailer that can actually hold up to Amazon over time, due to it being the largest retailer in the world. Still, it has faced very sluggish same-store sales growth and its earnings history has been spotty. At $78.28 a share, its stock is still lower than its highs from prior years, and the Dow Jones Industrial Average component still has a dividend yield of about 2.6%. Wal-Mart’s 52-week range is $65.28 to $79.44, and this was an $85 stock back in 2014.

24/7 Wall St. recently gave a dire warning about value stocks, and dividends are a part of that warning. There are far more lessons than can be said, but the safety of most dividends can be determined by identifying future earnings and cash flow per share and then matching that up against liabilities and terms of a company’s statutory liquidity levels versus its total borrowings.

The argument that retail is under attack by Amazon and other online efforts is not a new one. It is now finally reaching the point that the yields are so high they should start to worry investors.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.