Dividend stocks are throwing off a bit more yield this month even as markets hit record highs. The S&P 500 is up nearly 2% during the past month, yet the yield on the index edged up to 1.98% from 1.94%, too.
That’s a double helping of good tidings ahead of the holidays.
After all, higher yields on dividend stocks, however marginal, are welcome news for income investors who have been feeding off paltry payouts on bonds and savings products. The yield on the benchmark 10-year Treasury note rose sharply over the last month, but it’s still well below 3%. Heck, top-paying five-year jumbo CDs are lucky to break 2%.
So while 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: Altria (MO)
MO Dividend Yield: 5.1%
If it’s a tobacco company, it’s got to be found among the dividend stocks — but there’s no rule it has to be a total return hero like Altria (MO) has been so far this year. Between the generous dividend and strong share-price performance, MO stock has generated a total return of 24% for the year-to-date.
As we noted recently, Altria’s price hikes for smokeless tobacco have been driving surprisingly strong revenue growth — and better-than-expected earnings.
MO recently raised its dividend by more than 9% (the 47th such increase in the past 44 years), and RBC Capital Markets just initiated coverage of the stock at “outperform” (the analyst’s version of “buy”).
#9: AT&T (T)
T Dividend Yield: 5.2%
The reigning dividend stock champion of the Dow Jones Industrial Average has a fat enough yield to also land it among the top-paying dividend stocks in the S&P 500, too.
AT&T (T) stock has actually languished a bit during the past month — it’s now up just 2.6% on the year — but the chunky dividend gives shares almost bond-like ballast. On a total return basis, T stock has generated 8% for the year-to-date.
And 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 are bullish on AT&T’s plans to grab wireless market share in the U.S.
#8: Entergy (ETR)
ETR Dividend Yield: 5.3%
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 more than 1% for the year-to-date. Thankfully, the fat yield on the dividend allows ETR stock to claim a total return of 3.9% so far in 2013.
It has been 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 next year.
Worst of all, it’s just not a good time to be an electric company. Natural gas prices are historically low and that’s weighing on power prices. Heck, on a total return basis, the entire utility sector of the S&P 500 is lagging the broader market by 16 percentage points this year.
#7: Health Care REIT (HCN)
HCN Dividend Yield: 5.5%
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 10% for the year-to-date — a hole so deep even the hefty dividend yield can’t make it a profitable investment this year.
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.
#6: Pepco Holdings (POM)
POM Dividend Yield: 5.7%
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 more than 3% for the year-to-date. Add in the dividend and the total return comes to just 2.2% Meanwhile, the total return on the S&P 500 comes to a whopping 29% so far this year.
Of course, you don’t own a utility for price appreciation. That 5.7% yield on the dividend sure looks good for an income stream, and the extremely low volatility of POM stock adds a nice layer of defense.
#5: HCP Inc. (HCP)
HCP Dividend Yield: 5.7%
Like Health Care REIT, HCP Inc. (HCP) is having a bad year. HCP stock is off nearly 20% so far in 2013 and the 5.74% dividend yield can’t pull that kind of underperformance into the green.
Part of the problem is that REITs had a giant run last year, and now fears that the Federal Reserve could start tapering its bond-buying program have spurred investors and traders to lock in profits.
HCP had a strong third quarter, 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.
On the other hand, the huge selloff has boosted the yield on HCP stock to 5.74% for new money, which sure is tempting when it comes to dividend stocks.
#4: FirstEnergy (FE)
FE Dividend Yield: 6.8%
Ah, yes, another electric company struggling with low natural gas prices, Fed taper fears and — in this case — crummy third-quarter results that led it to slash its guidance.
FirstEnergy (FE) stock is down 22% for the year-to-date. On the bright side, that has really juiced the yield for new money. A month 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 0.11.
#3: CenturyLink (CTL)
CTL Dividend Yield: 7%
You don’t get into a conversation about dividend stocks without talking about regional telecommunications companies like CenturyLink (CTL). CTL — until recently a member of the S&P Dividend Aristocrats — wrote off a whopping $1.1 billion for goodwill in the latest quarter because its data housing business is something of a dud.
CTL stock has tumbled more than 19% so far this year, shooting the yield on the dividend up to nearly 7% — and there’s 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: 8.8%
Like CenturyLink, Frontier Communications (FTR) is a regional telecom with an ugly longer term stock chart and a yield high enough to make other dividend stocks blush.
Frontier Communications stock is up 6.7% for the year-to-date, and even with the nearly 9% yield on the dividend, still lags the broader market by a wide margin. Longer term, FTR lost more than half its value since 2010 amid heavy competition and the erosion of its key small business customer base.
The worst of the share-price erosion appears to be behind FTR, and now it looks like one of the elite high-growth stocks with fat dividends. Indeed, Wall Street figures FTR has a long-term profit growth forecast of 22%.
#1: Windstream (WIN)
WIN Dividend Yield: 12.42%
Wow, do these regional telecom companies kill it when it comes to high-yield dividend stocks. Windstream (WIN) had the highest yield of any stock in the S&P 500 last month, and since then it’s only gone up.
The stock is off 3% for the year-to-date and 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.