Dividend stocks have retained their appeal even as the market notches new all-time highs in 2014 — but average yields are indeed coming down. That’s what happens when dividend stocks rise on a price basis without increasing their payouts.
Indeed, the yield on the S&P 500 is down to 1.91%. A month ago, it stood at 1.98%, and a year ago it was 2.19%.
At the same time, yields in fixed income are becoming more attractive as bonds continue to sell off. The yield on the benchmark 10-year Treasury note is up to 2.88% and recently crossed the 3% threshold for the second time in the last year.
Of course, the trend in bonds is down with further weakness to come, while the rally in equities shows no sign of letting up. And although the market’s march to new highs feels great, don’t forget that income investors with cash to deploy usually have to contend with lower yields on dividend stocks when prices on those shares rise.
Happily, generous yields on dividend stocks abound in America’s main market benchmark. Indeed, some of these names look like firehoses of income. So where can you find the highest yields among dividend stocks in the S&P 500? Read on to find out:
#10: Entergy (ETR)
ETR Dividend Yield: 5.4%
It’s a darn good thing Entergy (ETR) has one of the highest yields of all the dividend stocks in the S&P 500, because shares are off 3% over the last year. Thankfully, the fat yield on the dividend allows ETR stock to claim a total return of 1.5% for the last 52 weeks.
2013 was a rough year on a number of fronts for Entergy. Expenses are on the rise, and a planned spinoff of its electric-transmission business was pushed into 2014.
Worst of all, it’s just not a good time to be an electric company. Natural gas prices are historically low, which is weighing on power prices.
#9: AT&T (T)
T Dividend Yield: 5.4%
The reigning dividend stock champion of the Dow Jones Industrial Average has a fat enough yield to land it among the top-paying dividend stocks in the S&P 500, too.
AT&T (T) stock has acted almost like a bond over the last year. It’s up just 0.5% for the last 52 weeks, but with the dividend, it’s been good for a total return of 5.7%.
No, you don’t buy telecom stocks for growth, but it’s not like growth is out of the question for AT&T. T is looking to make an acquisition in Europe, while analysts at Credit Suisse remain bullish on AT&T’s plans to grab wireless market share in the U.S.
#8 HCP (HCP)
HCP Dividend Yield: 5.5%
HCP (HCP) has been an absolute dog over the last year, losing roughly 17% on a price basis. Add in the big dividend and the total return still looks bad at -8.3%.
Part HCP’s problem is that REITs had a giant run in 2012, and last year it was time for payback. And now that the Federal Reserve is tapering its bond-buying program, investors and traders have looked to lock in profits and search for yield elsewhere.
HCP is projected to generate small gains in fourth-quarter earnings, but the market remains concerned that its revenue stream is too concentrated on a relatively small number of operators and tenants. It’s also an intensely competitive industry with especially relentless cost pressures.
#7: Ensco (ESV)
ESV Dividend Yield: 5.4%
Ensco (ESV), a U.K.-based oil and gas exploration company, cracks the top 10 dividend stocks this month with an abundant 5.4% yield. Although Ensco is somewhat of an unknown among the S&P 500’s top dividend stocks, it’s a very established name in the industry.
With a market cap of $13 billion and about 9,000 employees, Ensco has rigs working in pretty much every corner of the globe. Indeed, Ensco boasts the second-largest fleet of drilling rigs in the world.
ESV stock is off nearly 10% over the last 52 weeks, with lots of volatility along the way. Yes, the yield is generous, but investors have paid for it in underperformance and frayed nerves.
#6: Health Care REIT (HCN)
HCN Dividend Yield: 5.5%
Dividend stocks like real estate investment trusts (REITs) are required to pay out most of their earnings as dividends; that’s why you find so many of them among the top-paying dividend stocks. And if it weren’t for the dividend yield, Health Care REIT (HCN) wouldn’t look like much these days.
HCN stock is down 9% over the last 12 months — a hole so deep even the hefty dividend yield can’t make it a profitable investment over that time frame.
HCN enjoys a solid portfolio of senior housing, long-term care and medical office facilities, but an acquisition spree has greatly increased costs. Even worse, there have been reports of conflict between the CEO and the board of directors.
#5: Pepco Holdings (POM)
POM Dividend Yield: 5.8%
Utilities like Pepco Holdings (POM) are bedrock dividend stocks, but those low natural gas prices sure are making it hard on them. As noted above with Entergy, there’s a strong correlation between prices for natural gas and electric power, and that’s making life tough for the entire sector.
POM stock is off 2.6% for the last 52 weeks. Add in the dividend and the total return comes to just 4% Meanwhile, the total return on the S&P 500 comes to a whopping 28% over the same span.
Of course, you don’t own a utility for price appreciation. That 5.8% yield on the dividend sure looks good for an income stream, and the extremely low volatility of POM stock adds another layer of defense.
#4: FirstEnergy (FE)
FE Dividend Yield: 6.8%
First Energy (FE) is another electric utility company struggling with low natural gas prices, the Fed’s tapering program and — in this case — crummy third-quarter results that led it to slash its guidance.
FE stock is down 20% over the last year. On the bright side, that has really juiced the yield for new money. A couple of months ago, FirstEnergy’s dividend yielded 5.9%.
FE stock has some other things going for it, as well. The technicals say this thing is deeply oversold. Additionally, FE displays so little volatility it almost looks catatonic. When it comes to dividend stocks, you can do a lot worse than a yield of 6.8% and a beta of 0.3.
#3: CenturyLink (CTL)
CTL Dividend Yield: 7%
With CenturyLink (CTL) we get into the realm of telecom dividend stocks with silly high dividend yields — and underwhelming price performance.
A member of the S&P Dividend Aristocrats list of dependable dividend stocks until recently, CTL has tumbled more than 23% over the last 12 months, shooting the yield on the dividend up to 7%. The price performance makes the generous dividend almost immaterial, but there is some reason to hope that better times are ahead.
CTL has an Internet-based TV broadcast service that has reached almost 150,000 paying households in less than three years. That offers CenturyLink a chance to upsell customers to a triple-play package of broadband, landline and cable services.
#2: Frontier Communications (FTR)
FTR Dividend Yield: 8.2%
Frontier Communications (FTR) stock is up about 11% over the last 52 weeks, which is pretty good for a telecom stock — especially one yielding 8.2%. Add in the dividend, and the total return comes to 19.5%.
The knock against FTR stock is that it’s lost half its value over the past three years amid heavy competition and the erosion of its key small business customer base.
However, the worst of the share-price erosion appears to be behind FTR, as do stagnant profits. After some up and down quarters, Wall Street expects FTR to eke out a slight increase in earnings per share for the full fiscal year.
#1: Windstream Holdings (WIN)
WIN Dividend Yield: 12.4%
Windstream (WIN) once again leads the pack of top S&P 500 dividend stocks, throwing off a whopping yield of 12.4%.
But even with the fat dividend, WIN stock is still a money loser. It’s off 19% on a price basis over the last 12 months, which makes the total return -7%. Furthermore, there are justifiable worries that taking Windstream’s famously high yield is not worth the risk. After all, Windstream is highly leveraged and pays out more in dividends than it makes in earnings.
It’s also harder to be bullish on Windstream’s operations than the other high-yield regional telecoms on this list, as WIN continues to suffer the loss of digital TV and voice services customers. Hey, you’re never going to get dividend stocks yielding more than 12% without at least a little heartburn.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.