A message to frustrated investors: Chasing dividend yield a 'cry for help'

Stocks tread water
Profit recession ending?
Banks rebound on flat day for European stocks
The quick acceleration of rates slows

Amid a frustrating environment, investors are pursuing dividend yields, and that might not be a good thing, experts told CNBC's "Squawk on the Street" on Wednesday.

"Chasing down and consuming yield is not really a strategy, it's more of a cry for help," said Barry Bannister, chief equity strategist at Stifel Nicolaus. "Deflation still weighs in the market, and whether you're chasing dividend yield or earnings yield through a higher [price-earnings ratio], the problem is still deflation."

Diversification is still key amid a landscape that may have unexpected risks, said Seth Masters, chief investment officer at Bernstein Global Wealth Management.

"A lot of this search for dividend yield is a search for safety, and people may discover that, in fact, these stocks are really not safe," Masters said, also on "Squawk on the Street." "First of all, many of them are not growing at all, and that's a problem. Secondly, many of them are interest rate sensitive. And so for both reasons, if you're bidding up their price a lot ... there's a long way to go down if things begin to look a little less safe."

August has been weighed down by a patchy, sector- and company-specific earnings cycle, Masters said. Amid earnings, fiscal stimulus from the Bank of Japan was disappointing in size, while a measure of Chinese manufacturing was weak, Bannister said. Meanwhile, there's no decisive movement on European banks and the Federal Reserve is sending mixed signals, according to Bannister.

That setup presents some challenges, Masters said, including actively looking for opportunities that are misunderstood and dangers that are overbought. The comments came on a day the general market ticked slightly higher as oil rose 3 percent.

"Sentiment continues to be very weak, and people are very nervous, and growth is very modest," Masters said. "We think what we're going to see is a continued environment where there's lots of volatility, an upward trend, but at a relatively slow pace. That's a very frustrating environment for most investors."