In this article, we will examine 10 companies with high dividend yields and explore the reasons behind declining stock prices.
Companies that pay dividends have been a reliable choice for investors seeking a passive and somewhat stable income. All the stocks in our list today have offered attractive yields, thus satisfying the expectations of these investors. But we have noticed them struggling in recent months.
Broader market conditions, like a 25% tariff on steel and aluminum imported into the US, have led to market volatility. Though the broader market remained unchanged, the Nasdaq composite faced a decline during the past few weeks. These changes are reflected in the price of many high dividend-paying stocks. Some companies are additionally experiencing company-specific challenges. The strategic transition of British Petroleum from oil and gas assets to green energy and divestment, for instance, has led to its underperformance. Comparatively, competitors who were focused on fossil fuels gained preference, owing to the analysts questioning the future dividend sustainability of BP. The shifting investor sentiment also has contributed to the downturn of some of the stocks in our list.
We find it difficult to point out any single sector as a worst-performing sector. The recent macroeconomic trends, inclusive of the inflationary pressures as well as the interest rate adjustments, cause ripples across multiple sectors in the US economy. Some companies have maintained stable payouts proportionately to an increase in their share value. Others face declining share prices because of weaker earnings and reduced interests among the hedge fund holders.
Dividend Aristocrats have historically provided stability and consistent income. They have been a popular choice among long-term investors. In the past few months, however, the stock prices of these companies have declined despite maintaining high dividend yields. The upward interest rates and inflation rates recently pressured some high-yield companies, making it hard for them to sustain dividend increases without debts. Thus, high yields may seem appealing, but it falls in the hands of the investors to assess the ability of these companies to maintain their payouts without jeopardizing financial health.
In this article, we will analyze the key factors affecting these stocks and their potential outlook.
Photo by Vitaly Taranov on Unsplash
Our Methodology:
The article includes 10 high-yield dividend stocks experiencing a decline in their prices in the last 1 month. Each company on the list was added after ensuring that they have a market capitalization of over $1 billion and a minimum dividend yield of 2.5%. The article assessed financial sustainability using historical stock performance, dividend payout ratios, and earnings reports. For this list, we scanned Insider Monkey’s database of 900+ hedge funds as of the third quarter of 2024. The final list is ranked according to their dividend yields, as of February 11.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Merck & Co., Inc. (NYSE:MRK)
Annual dividend yield: 3.76%
Ex-Dividend Date: March 17, 2025
Number of Hedge Funds: 88 (2024 Q3)
Quarterly dividend amount: $0.81
Merck & Co., Inc. (NYSE:MRK) shares declined in recent days due to growing concerns over the patent expiration of Keytruda, a cancer therapy that accounts for 45% of its total revenue. Keytruda, which generates $25 billion in sales for Merck, was first approved by the FDA in 2014 to treat cancer, which is set to expire in 2028. Furthermore, Summit Therapeutics’ ivonescimab and ImmunityBio’s Anktiva are rising in the market as a viable alternative for Keytruda. Meanwhile, its other drug, GARDASIL is facing a regulatory crackdown in China, which in turn leads to a negative outlook on the stock.
Merck & Co., Inc. (NYSE:MRK)’s dividend yield is currently around 3.71%, and the company has demonstrated a commitment to increasing its dividend annually. The collective consensus about this drug remains moderately negative among the analysts, as Bernstein SocGen Group slashed their target from $110 to $95.
9. HP Inc. (NYSE:HPQ)
Annual dividend yield: 3.49%
Ex-Dividend Date: March 12, 2025
Number of Hedge Funds: 43 (2024 Q3)
Quarterly dividend amount: $0.29
The global PC market has been declining for a while, making up a significant portion of HP Inc. (NYSE:HPQ)’s revenue. The 2024 fiscal year sales volume has decreased by 0.3% compared to 2023, and it is expected to have a significant impact on the EPS of the company for the 2025 fiscal year as the analysts have reduced the projected EPS from $0.85 to $0.70-$0.76. In addition to that, the company is facing significant pressure from its competitors, who are taking up a substantial percentage of its market share in the PC and PC components industry. For instance, Canalys reports that HP Inc. (NYSE:HPQ)’s global PC market share has decreased from 21.5% in 2023 to 20.7% in 2024.
As a result, the stock price of HP remained stagnant over the last 6 months, declining over 2%. Despite the not-so-favorable investor sentiment, HP Inc. (NYSE:HPQ) remains committed to providing a strong dividend yield of 3.5%, compared to the technology sector average of 1.37%, and maintains a balanced payout ratio of over 30%.
