Yield. It’s getting harder to come by as S&P 500 stocks continue to push to new highs. The quest to find reasonably priced dividend stocks to buy has become so difficult. Now, the average S&P 500 dividend stock yields just 2.13% — lower than almost every period in history, with the exception of the dot.com bubble in 2000.
The days of most dividend stocks yielding 4% or more are long gone. Once upon a time, investors were certain to get them. For almost a full decade between 1977 and 1984, the average S&P 500 stock yielded 4.91% — 278 basis points higher than today!
Of course, back then, the prime rate varied anywhere from 6.5% to a record 21.5% in December 1980. It’s this phenomenon that bulls use to argue against today’s S&P 500 being overvalued.
It’s a legitimate argument, but it doesn’t solve your yield problem. Sure, if your target is 4% real returns (6% before inflation) and your dividend gets you 2% of the way, capital appreciation must get you the other 4% on an annual basis as opposed to 2% when dividends are doing twice the work.
You can argue that all of this yield stuff is simply semantics because at the end of the day it’s the dollar amount that really matters. If you have a $700,000 portfolio with seven S&P 500 dividend stocks and require $28,000 in annual income from it, all that matters is how you get there.
Well, I’d like to help you get there. Here are seven S&P 500 dividend stocks that currently yield 4% or more.
S&P 500 Dividend Stocks to Buy: LyondellBasell Industries NV (LYB)
Yield: 4.3%
Sector: Materials
LyondellBasell Industries NV’s (NYSE:LYB) checkered past — the chemicals company sought Chapter 11 bankruptcy protection in 2009 — shouldn’t scare you away from investing in its stock. Here’s why.
When LyondellBasell went bankrupt, it had $19 billion in debt, which represented 70% of its total assets at the time. Today, it has $8.5 billion in debt against $23.4 billion in assets; so, debt is just 36% of its total assets.
Meanwhile, despite the fact LYB’s revenues and profits are lower in 2016, it still has managed to generate $3.5 billion in free cash flow over the trailing 12 months, $1.4 billion of which was used to pay dividends. Considering that LyondellBasell converts 86% of its net income into free cash, its future dividend payments are secure.
During the second quarter, LyondellBasell repurchased $1.7 billion of its shares, representing 2% of its the total outstanding. It also paid out $362 million in dividends. In May 2016, LYB authorized the repurchase of up to 10% of its stock by November 2017. The 21.1 million shares it repurchased in the second quarter were bought at an average price of $79.89 — exactly where LYB stock is currently trading.
LYB is down 5% year-to-date. Now is a good time to buy.
S&P 500 Dividend Stocks to Buy: Mattel (MAT)
Yield: 4.7%
Sector: Consumer Goods
Toymaker Mattel, Inc. (NASDAQ:MAT) is in the middle of a turnaround that appears to be bearing fruit, and that has investors excited. MAT shares are up about 20% year-to-date, and roughly 30% over the past 52 weeks.
Mattel still is well off its all-time high of $48.48 set in December 2013, but there are still numerous reasons why the 4.7% yield is worth buying into.
Mattel lost shelf space in 2015 to Hasbro, Inc. (NASDAQ:HAS) and the rest of its competitors. Long-time board member Christopher Sinclair was named permanent CEO in April of last year, and since then, analysts feel, Mattel has gotten a bit of its swagger back.
In the process, it should retake some of that shelf space.
“We expect the company to improve the delivery of new products to retailers this year, and to recover some of the shelf space lost in 2015,” Argus Research analyst John Staszak wrote in an Oct. 21 note to clients.
Another area where Sinclair has been able to improve Mattel’s business is its operating margins. Historically, these have been above 12%, but they dipped well below that in the past two years. Staszak expects those to get close to 16% by the end of fiscal 2017.
With new products in the pipeline combined with better gross and operating margins, investors can expect Mattel’s earnings to rise considerably over the next two years.
That should hike MAT stock and keep the dividend plenty safe.
S&P 500 Dividend Stocks to Buy: Macy’s (M)
Yield: 4.2%
Sector: Consumer Services
Macy’s Inc (NYSE:M) hasn’t had a lot of good press in recent years, so you’re probably surprised to see it on a list of dividend-paying stocks. However, I feel the department store’s business is going to get better in the next 12 to 24 months, which should ensure the safety of its dividend payout.
By the way, there’s only one other stock in the services sector that meets the criteria of this article, and that’s Kohl’s Corporation (NYSE:KSS). But I’ll choose Macy’s over Kohl’s every day of the week.
Macy’s recently took a lot of heat from REI CEO Jerry Stritzke for opening at 5 p.m. on Thanksgiving Day, its earliest Black Friday opening in its history. REI has generated a lot of positive press from its unusual retail stance of closing for both Thanksgiving and Black Friday. My wife works in retail, so I appreciate REI’s sentiment … but it’s a little self-serving when many of your customers are already going to be out biking and hiking and not anywhere near a store on those days.
But I digress.
Macy’s is doing more than other department stores to right size its business. According to RBC Capital Markets, Macy’s will have closed 186 stores by this time next year since 2013 — more than J C Penney Company Inc (NYSE:JCP), Dillard’s, Inc. (NYSE:DDS) and Kohl’s combined. The billion dollars it’s giving up by closing these stores will eventually be recovered through its online business.
The bottom line is Macy’s still generates more than $1 billion in annual free cash flow, or $3.47 per share, while paying out $1.51 in annual dividends. That leaves plenty to invest in its future business plans while also ensuring you, Mr. or Ms. Investor, gets paid.
S&P 500 Dividend Stocks to Buy: Verizon (VZ)
Yield: 4.8%
Sector: Technology (Telecom)
Verizon Communications Inc. (NYSE:VZ) — the best-yielding dividend stock of the bunch — announced its Q3 2016 earnings Oct. 21. Especially troubling was the 442,000 total subscribers it added in the third quarter, the lowest quarterly number in the past six years.
Worse still, analysts expected it to add 875,000, or almost double the number it actually brought in. Ouch.
What gives?
Verizon has decided that it wants to be a profitable company; not necessarily the biggest. In addition, with the acquisition of AOL and likely acquisition of Yahoo! Inc.’s (NASDAQ:YHOO) content businesses, Verizon is wading into mobile video and advertising through its Go90 video streaming division.
Whether it can challenge Facebook Inc (NASDAQ:FB) and the rest of the mobile video competition is very much up in the air. But if you believe in what AT&T Inc. (NYSE:T) is trying to do by acquiring Time Warner Inc. (NYSE:TWX) for $85 billion — many don’t — then Verizon is on the right track to diversifying its revenue.
Verizon has plenty of free cash flow to cover its annual dividend of $2.32 per share. Income investors will do just fine owning VZ stock.
S&P 500 Dividend Stocks to Buy: PPL Corp (PPL)
Yield: 4.5%
Sector: Utilities
You can’t have a dividend-paying portfolio without a stable revenue-generating utility to fit the bill, and Pennsylvania-based PPL Corp (NYSE:PPL) is just the ticket. PPL offers a dividend that hasn’t yielded less than 4% since 2007, so income investors can rest easy knowing that the income they require will be there when they need it.
In August, PPL reported second-quarter earnings and told investors to expect a long-term compound earnings per share growth rate of at least 5% for each of the next four years. PPL also said to expect a 4% dividend growth rate (more than double inflation) during the same period.
PPL, which reports Q3 earnings Nov. 1, expects fiscal 2016 earnings per share from ongoing operations of at least $2.25. It also plans to invest more than $15 billion over the next four years to make its energy grid that much better.
With PPL, you get a pure-play electric utility operating in Pennsylvania, Kentucky, Virginia and Tennessee, as well as the U.K., where 100% of its revenue is from a rate-regulated business model. More importantly, PPL’s 2011 purchase of U.K. and Wales assets appears to be paying off in a big way for the company, generating 54% of its ongoing earnings.
PPL isn’t sexy, but it pays the bills. That’s what counts.
S&P 500 Dividend Stocks to Buy: Pitney Bowes (PBI)
Yield: 4.3%
Sector: Technology
Pitney Bowes Inc. (NYSE:PBI) recently announced that Rue La La — a Boston-based online retail site that brings the finest in off-price merchandise to its members — was hooked up to its Borderfree Retail solution. That allows Rue La La to process orders from 219 countries around the world, with Pitney Bowes handling the tough part of payment, border costs and delivery.
In 2015, Pitney Bowes acquired FiftyOne, which by then had been taken public by its private equity owners for $395 million, or about three times revenue. PBI made the deal to get it further into the growing e-commerce business while utilizing its traditional shipping and mailing products and services to strengthen its appeal with companies doing commerce on a global basis.
In the second quarter ended June 30, Pitney Bowes generated $86 million in free cash flow from $835 million in revenue. The total is up from $84 million on $881 million in revenue a year earlier. While PBI’s mailing business still accounts for a majority of its revenue and EBIT, investors should keep an eye on its digital commerce solutions business as it continues to help companies such as Rue La La do business around the globe.
Pitney Bowes’ dividend appears to be safe, but it’s definitely the most speculative of the seven stocks.
S&P 500 Dividend Stocks to Buy: Ventas (VTR)
Yield: 4.4%
Sector: Real Estate
Ventas, Inc. (NYSE:VTR) is one of the leading healthcare real estate investment trusts in the U.S. with more than 1,300 properties in the U.S., Canada, and the U.K. Go to their website, and right there on the homepage are two wonderful statistics highlighting why it’s an excellent choice for any investor interested in both growth and income.
For growth, Ventas has delivered 26% compound annual total shareholder return since Jan. 1, 2000. On the income front, VTR has grown its dividend by 10% annually since 2001. That’s quite a combination.
Recently, I picked Ventas CEO Debra Cafaro as one of the three best female CEOs of an S&P 500 company — there are 23 women running companies in the index — citing the global aging trend as a big reason why Cafaro and Ventas will continue to deliver market-beating returns.
Owning a diversified portfolio of healthcare properties that includes senior housing, hospitals, medical office buildings, skilled nursing facilities and life sciences buildings, its revenue streams are secured by a 97% lease rate ensuring the cash flow to pay its monthly distribution is more than available.
I hope you’ve read this far. Of the seven dividend stocks on my list of 4%-plus yields, this is my favorite stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
