What's Wrong with Dividend-Income Stocks (MO, ABBV)

Altria’s (NYSE:MO) mid-month selloff ended the stock’s uptrend. Throughout the summer, Altria rose steadily as income investors piled on the yield-rich stock.

But after MO stock failed to hold the $43-$44 levels, the stock closed at around $38 last week and a nearly 9% dividend.

In the drug manufacturing space, AbbVie (NYSE:ABBV), whose stock yields around 5.5%, pulled back sharply from the over $100 high reached in the summer. The stock broke down below the 20-, 50-, and 200-day moving averages. Despite favorable valuations (by P/E) in both cases, the decline is troubling for income investors.

Income investors should not look only at a yield on a stock’s return. The total return depends on the stock price holding its value. When it drops more than the dividend yield, the paper loss is a bother. Patient investors may hold the stock and wait for a rebound or add to an existing position. Before doing that, investors must re-affirm the business is sound.

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Altria may face litigation issues again with e-cigarettes and tobacco next year. Its Cronos (NASDAQ:CRON) holding and Juul investment both lost billions. Investors are punishing Altria for that.

AbbVie reported nothing new but is falling. Since its fundamentals are still very strong, its monetization of Allergan will pay off.