Good dividend stocks to buy haven’t been hard to find recently if all you care about is price appreciation. The S&P 500 bounced back in a big way after frightening everyone with an October correction, but the market has rebounded, and now the S&P 500 is up almost 10% for the year-to-date to hit new record highs.
Indeed, the hit market notched new intraday and closing highs at the end of last week.
However, rising share prices tamp down yields for anyone looking to buy dividend stocks. At this time last year, the dividend yield on the S&P 500 stood at 2%. Cut to today, and the yield from these stocks comes to 1.92%.
So as easy as it has been to find rip-roaring stocks, it hasn’t been as easy to find great-yielding dividend stocks to buy.
Income investors looking for dividend stocks should always look in the usual places, like the telecommunications and utilities sectors, as well as real estate insurance trusts (REITs). This year, however, we see top dividend stocks in some surprising places, like toymakers and deepwater drillers.
Be forewarned that if you’re looking for dividend stocks to buy, you can’t go by high dividend yields alone. Quite the contrary. As with bonds, yields on dividend stocks rise when the share price falls. Sometimes a stock has a very high dividend only because there is something very wrong with the company and the stock price reflects it.
To get a sense of what the best dividend stocks are churning out, we screened the S&P 500 for the top yielding companies. From nearly 5% to more than 10%, some of these companies should very well be on your list of dividend stocks to buy.
Top S&P 500 Dividend Stocks #10: Iron Mountain Incorporated (IRM)
IRM Dividend Yield: 4.7%
Iron Mountain (IRM) makes a second consecutive appearance as a top 10 S&P 500 dividend stock, although the yield fell by about a percentage point since last month.
Shares are up about 35% for the year-to-date. Iron Mountain has delivered relentless growth thanks to gains in volume and acquisitions, but the dividend yield jumped because of a big change to corporate structure.
IRM applied for and was awarded status as a real estate investment trust (REIT) in late September. Now that it has to pay out most of its earnings in dividends, you can expect to see IRM making the list of top S&P 500 dividend stocks regularly.
Top S&P 500 Dividend Stocks #9: Mattel, Inc. (MAT)
MAT Dividend Yield: 4.8%
Blame in on Barbie. Toymaker Mattel (MAT) finds itself among the top 10 dividend stocks for a second straight month, although MAT stock did recover from a 2014 low in mid-October.
Regardless, MAT stock still is down 33% for the year-to-date, underperforming the broader market by about 43 percentage points, as very little has gone Mattel’s way in 2014.
But the troubles go beyond just weak consumer spending.
Rival Hasbro (HAS) beat out Mattel for a lucrative deal to make dolls based on the hit Walt Disney (DIS) movie frozen. And Denmark’s Lego recently overtook Mattel as the world’s largest toymaker. Worst of all, Mattel is suffering a sales slump in Barbie toys, which is by far the most important toy for the company.
Top S&P 500 Dividend Stocks #8: HCP, Inc. (HCP)
HCP Dividend Yield: 5%
As mentioned with IRM, REITs are required to pay out most of their earnings as dividends in exchange for certain tax benefits, which is why so many of them make lists of top dividend stocks. And with a consistently high dividend yield, HCP (HCP) has become a staple on our monthly list of dividend stocks.
Indeed, as a U.S. healthcare REIT, HCP stock is insulated from geopolitical troubles or European credit worries, helping it to zig when the market zags. A 29-year track record of rising dividends doesn’t hurt either. Indeed, HCP has been paying dividends since 1985, which is why it makes InvestorPlace’s list of Dependable Dividend Stocks.
At the same time, HCP’s fundamentals have been propelling shares too. HCP stock is up 19% so far this year.
Top S&P 500 Dividend Stocks #7: AT&T Inc. (T)
T Dividend Yield: 5.3%
The telecommunications sector is always a good sector for generous dividend stocks, even if telcos are making the headlines recently for industry consolidation.
In its latest move, AT&T (T) struck a deal worth $2.5 billion to buy Iusacell, the third-largest wireless company in Mexico. That acquisition comes at the same time that T is still closing its purchase of DirecTV (DTV), which should be done in April, pending regulatory approval. The deal was necessary to fend off competition from Comcast’s (CMCSA) plan to acquire Time Warner Cable (TWC).
A gusher of free cash flow makes is easy for T to make a nearly $50 billion acquisition and pay out very high dividends — and it really needs to this year. T is flat so far in 2014.
Top S&P 500 Dividend Stocks #6: CenturyLink, Inc. (CTL)
CTL Yield: 5.5%
CenturyLink (CTL) is another telco stock that consistently makes the top 10 list thanks to its almost preposterously high dividend yield. True, CTL has been a dog of a stock for ages, so it needs to pay a fat dividend to justify holding it for any length of time. (Gushers of free cash flow make the payouts possible.)
That said, things have been going great for CTL stock lately. Shares are up 24% year-to-date, outpacing the S&P 500 by about 14 percentage points.
The upside in price has dropped the yield on CTL below 6%, but given that the stock is a big-time market-lagger for pretty much any time frame longer than 52 weeks, shareholders probably aren’t complaining.
Top S&P 500 Dividend Stocks #5: Frontier Communications Corp (FTR)
FTR Dividend Yield: 6.2%
Not to bore anyone, but yet another telecom stock makes the list of top dividend stocks. Like CTL, Frontier Communications (FTR), is a regional telecom with a junk-bond-type dividend yield.
FTR was a crummy stock for years, which partly accounts for its dividend yield. But cut to today, and FTR stock is having a incredible year. Indeed, it’s up a remarkable 39% so far in 2014.
At any rate, Frontier is focusing on retaining customers and cutting costs. FTR posted better-than-expected third-quarter earnings, and analysts think it will post profit increases in both 2014 and 2015. Either way, as a telecom, FTR enjoys a river of free cash flow, which helps ensure the fat dividends will keep coming.
Top S&P 500 Dividend Stocks #4: Noble Corp plc (NE)
NE Dividend Yield: 6.9%
The terrible, horrible, no good very bad year for energy prices keeps crushing a wide swath of sector stocks. Just look at Noble Corp (NE).
The sluggish global economy and boom in U.S. energy production is weighing on prices, and therefore demand for rigs. That’s why NE is off 43% for the year-to-date.
If there’s a bright spot, the poor price performance has lifted the dividend yield on Noble to nearly 7%. At least anyone buying in at this level will have a decent income stream while waiting for an upturn in the industry.
However, they might have to wait for some time. Noble’s latest fleet status report was once again a compendium of stagnant day rates and soon-to-expire contracts.
Top S&P 500 Dividend Stocks #3: Ensco PLC (ESV)
ESV Yield: 7.5%
Ensco (ESV) is another oil and gas driller getting laid low by declining rates for rigs amid a soft energy market. Indeed, ESV has lost 30% so far this year, lagging the broader market by about 20 percentage points.
Deepwater drilling stocks were though to have bottomed out over the summer, but they’ve only been getting cheaper ever since. Heck, crude oil futures fell nearly 20% in the last quarter alone.
ESV stock does sport a massive dividend yield for new money, but investors need to realize there’s a risk ESV will be forced to cut it if the energy market weakens further. ESV might be worth it for its gusher of income, but oil prices will have to bounce back for shares to rise, to say nothing of keeping the dividend safe.
Top S&P 500 Dividend Stocks #2: Transocean LTD (RIG)
RIG Dividend Yield: 10.1%
Transocean (RIG) completes the trifecta of oil and gas drillers claiming four of the five top spots for S&P 500 divided payers. The yield stands above 10%, and heck … even the average junk bond only yields about 6%.
In addition to a lower-rate (and lower-margin) environment, RIG is getting hurt by a large number of rigs coming off contract. The company is in the midst of a restructuring, which will spin off eight rigs into a new, publicly traded company, but that won’t do much for the stock in the short term.
Most worrisome is that RIG has repeatedly made new lows since mid-October. And there’s nothing RIG can do about the energy market except wait and hold on.
Now that Europe looks to have hit a triple-dip recession, that wait will be longer than first thought.
Top S&P 500 Dividend Stocks #1: Windstream Holdings Inc (WIN)
WIN Dividend Yield: 10.5%
Windstream Holdings (WIN) reclaimed the top spot among S&P 500 dividend stocks this month. (It was finally knocked off its long-held perch in October by RIG.) This telecom still delivers a huge dividend, but the yield sure is down a lot this year. Indeed, the yield on WIN’s dividend was 12% when the year started.
Happily for anyone who’s gone along for the ride, that’s because WIN stock is up 18% for the year-to-date. This long-suffering telco is having a strong year, but be forewarned that it’s still a long-term loser, off more than 6% during the past five years and 40% during the past decade.
True, WIN pays out far more in dividends than it earns as profit, but it has more than enough cash flow to keep the stream coming. Over the past 12 months, WIN paid out $600 million in dividends while cash flow came to $930 million even after paying interest on its borrowings.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
