The economy appears to be slowing down. Inflation and higher interest rates are proving to be a big drag on the economic outlook. That could make it a rough time for many dividend stocks.
The weakness is particularly stark in consumer-facing industries. Bankruptcy filings have been sharply higher in 2023, led by retailers, and that appears to be where much of the pain will be going into 2024. That should make investors want to sell these three particular dividend stocks before conditions worsen further.
Macerich (MAC)
Macerich (NYSE:MAC) is a real estate investment trust focused on shopping malls. It tends to own higher-quality shopping malls with higher sales per foot than the industry average.
The focus on higher-quality malls has helped shelter Macerich from uncertainties in the industry. The firm’s malls haven’t fallen on the same sorts of hard times and death spirals so common at many smaller regional malls.
That said, the industry faces grave headwinds given the collapse of department stores and many in-line tenants. Owners like Macerich will have to reposition huge amounts of floor space away from these failing store categories into new things that draw in and entertain the next generation of consumers.
Given the rush of retail bankruptcies, high inflation, and the slowing economy, it seems likely that malls can expect another rough holiday season. Investors may like MAC stock’s 6.50% dividend yield, but that dividend could be at risk over the longer term.
The Gap (GPS)
Mall retailer The Gap (NYSE:GPS) appears to be at risk from these broader economic forces.
Consumers are facing an increasingly rough outlook. Student loan payments have restarted. Inflation continues to eat into purchasing power. Furthermore, the flood of government stimulus and relief payments related to COVID-19 has ended.
All this has people cutting back expenses. This year, we’ve already seen a flood of retail bankruptcies as companies like Rite Aid (OTCMKTS:RADCQ) have needed to restructure. Gap isn’t in that bad of a position, as it has a healthier business for now.
Analysts project Gap to earn just 72 cents per share for the fiscal period ending in January 2024, which would only narrowly cover the firm’s 60 cent annual dividend payout. A decline in earnings or softness in the economy would make it hard for Gap to support its current dividend. GPS stock yields more than 5% today, but that yield might not last long.
Scotts Miracle-Gro (SMG)
Scotts Miracle-Gro (NYSE:SMG) is a materials company that makes agricultural inputs. It is most known for its name-brand fertilizer products.
SMG stock became popular with investors years ago as a backdoor way to play the cannabis industry. With legalization spreading, in theory, Scotts Miracle-Gro could sell a lot more fertilizer and hydroponics to home cultivators. However, like many things related to the cannabis industry, results largely failed to live up to expectations.
And the company’s traditional gardening business is now seeing falling profitability as spending returns toward more normal trends. People spent a ton of time and money on gardening when they were stuck at home during the pandemic, but that interest may be waning with the economy reopened.
In any case, Scotts Miracle-Gro’s profits have fallen dramatically, and it just shook up the management team to try to turn things around. Shares are slumping once again as analysts fret over a weakening outlook going forward. SMG stock is currently paying a 6.1% dividend yield, but that dividend appears to be at risk given the company’s weak profitability.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
