The Dividend Might Look Great, But This Stock Is the Worst

The Dividend Might Look Great, But This Stock Is the Worst

At first glance, Macy's (NYSE: M) looks like a tempting income investment. It pays a forward yield of 7.8%, and it's raised that dividend annually for six straight years. That dividend seems sustainable, since it accounted for just 68% of the company's earnings and 49% of its free cash flow over the past 12 months, and the stock also looks cheap at 11 times earnings.

But before buying Macy's as a cheap income play, investors should realize that its yield was dramatically inflated by the stock's 50% decline over the past 12 months. Let's examine the headwinds blowing Macy's off course, and why its hefty dividend could trap unsuspecting investors.

Source: Macy's.

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Source: Fool.com