The Top 10 S&P 500 Dividend Stocks for February

by Dan Burrows | February 10, 2014 2:57 pm

Stocks finally started rising again last week, but the market is still down on the year. As worrisome is that is, there is a sliver of a silver lining, at least for income investors: Yields on dividend stocks are going up.

dividend-stocksThe S&P 500 is off 2.8% for the year-to-date. And before last week’s gains, the main market benchmark was down nearly 6% on the year. But since yields on dividend stocks move in the opposite direction of price, new money can now enjoy more bang for the buck.

Indeed, around this time last month, the yield on the S&P 500 stood at 1.91%[1] . Today it’s up to 1.96%

By the same token, demand for bonds has interest rates and yields on fixed income coming down once again. The yield on the benchmark 10-year Treasury note is sitting around 2.68% these days, down from 2.88% a month ago.

That’s good news for dividend stocks because it makes their yields more competitive when compared to bonds. The downside, of course, is that most dividend stocks  are yielding more because prices are down.

But if income is the name of your game, you can get better yields out of dividend stocks today, especially when you look at what yields were doing when the market was notching all-time highs.

The names of the top 10 S&P 500 dividend stocks haven’t changed much since last month, but the yields are a bit higher. To get a sense of what’s out there among high-yield dividend stocks, here are the top 10 S&P 500 dividend stocks for February:

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#10: Teco Energy (TE)

dividend-stocks-te-stockTE Dividend Yield: 5.4%

It’s hardly a surprise to see another electric and gas utility on this list, but please welcome Teco Energy (TE[3]) into the top ten, with a yield well above 5%.

The extended deep freeze hitting much of the country finally gave energy companies a break. Demand for natural gas led to a rise in prices, helping to lift them out of a long period of languishing near historic lows.

Unfortunately, greater energy use hasn’t done anything to support Teco stock this year. TE stock is off 4.6% for the year-to-date.

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#9 Altria (MO)

dividend-stocks-mo-stockMO Dividend Yield: 5.5%

Tobacco giant Altria (MO[4]) returns to the top 10 S&P 500 dividend stocks with a yield of 5.4%.

Altria didn’t have such a good quarter to wrap up the year. Earnings dropped 56%, hurt by debt repayments and lower demand for smokes. Meanwhile, in a move to address secular decline in the U.S. tobacco market, Altria acquired e-cigarette company Green Smoke.

But there’s no getting around the fact that MO stock has a higher dividend now because shares have performed so poorly. MO stock is down 8.5% for the year-to-date.

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#8: Pepco Holdings (POM)

dividend-stocks-pom-stockPOM Dividend Yield: 5.5%

Pepco Holdings (POM[5]) once again makes the list of top 10 S&P 500 dividend stocks, but for the first time in a long time, we don’t have to worry as much about natural gas prices. The strong correlation between prices for natural gas and electric power has been making life tough for the entire sector for some time.

So it may not come as a surprise that POM stock is up 2.6% for the year-to-date, beating the broader market by almost 6 percentage points.

Of course, you don’t own a utility for price appreciation, and the rising share price has knocked the yield on this dividend stock down a bit from last month, when it was 5.8%.

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#7: Health Care REIT (HCN)

dividend-stocks-hcn-stockHCN Dividend Yield: 5.6%

Real estate investment trusts (REITs) are a special kind of dividend stocks 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. Happily for Health Care REIT (HCN[6]), both the dividend and price appreciation are doing well by investors this year.

HCN stock is up 5.8% for the year to date. Add in the dividend and the total return comes to 7.4%.

HCN enjoys a solid portfolio of senior housing, long-term care and medical office facilities, but an acquisition spree has greatly increased costs. Over the last 52 weeks, HCN stock is off by 9%.

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#6 HCP (HCP)

dividend-stocks-hcp-stockHCP Dividend Yield: 5.6%

HCP (HCP[7]) is another REIT that’s no stranger to the list of top dividend payers. And between a dividend hike and a sagging share price, the dividend yield on HCP stock is up from 5.5% a month ago.

That might be good for new money, but existing investors are having no fun. HCP stock is off more than 17% so far in 2014.

HCP is projected to show a small-gain in earnings when it reports fourth-quarter results Tuesday, but the market remains concerned that its revenue stream is too concentrated on a relatively small number of operators and tenants.

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#5: AT&T (T)

dividend-stocks-t-stockT Dividend Yield: 5.7%

AT&T (T[8]) always makes the list of top dividend stocks, and its yield has only gone up since last month, when it stood at 5.4%.

The most interesting news out of T stock recently is that it’s slashing prices on family wireless plans. Since the U.S. market is saturated, the only way to gain share is to steal from the competition. But getting into a price war is always risky, since it can seriously squeeze margins.

T stock has had a rough start to the year, dropping 7.8% on a price basis. Add in the dividend, and the total return still comes up negative at roughly -3%.

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#4: Ensco (ESV)

dividend-stocks-esv-stockESV Dividend Yield: 5.9%

Ensco (ESV[9]), a U.K.-based oil and gas exploration company, cracks the top 10 dividend stocks for the second consecutive month, as the yield shot up to 5.9% from 5.4% a month ago.

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.

Despite is prominence in the industry, ESV stock has been a dog this year. It’s off 11% for the year-to-date. So, although the yield is very generous, investors have more than paid for it in negative share-price performance.

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#3: CenturyLink (CTL)

dividend-stocks-ctl-stockCTL Dividend Yield: 7.5%

With CenturyLink (CTL[10]), we enter the realm of telecom stocks that always dominate the top of the dividend yield list — albeit with poor price performance. Indeed, CTL stock is down a rough 9% so far this year.

The price performance makes the generous dividend essentially 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. But CTL stock had better show signs of success soon.

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#2: Frontier Communications (FTR)

dividend-stocks-ftr-stockFTR Dividend Yield: 8.8%

Frontier Communications (FTR[11]) isn’t off to such a bad start in 2014. FTR stock is down 1.9% on a price basis, but the crazy 8.8% dividend has it positive for the year-to-date, and beating the broader market by a wide margin.

The knock against FTR stock is that it has lost half its value over the past three years amid heavy competition and the erosion of its key small business customer base.

The worst of the share-price erosion might be behind FTR stock. 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.

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#1: Windstream Holdings (WIN)

dividend-stocks-win-stockWIN Dividend Yield: 13.6%

Windstream Holdings (WIN[12]) remains the reigning champ of dividend stocks in the S&P 500, and the yield has only gone up. WIN stock yields an incomparable 13.6%, up from 12.4% a month ago.

Like CTL stock, WIN stock is a telecom that has fallen on hard times. Indeed, WIN stock has dropped 7.8% so far this year. Only that insanely high dividend pulls WIN stock into the green for the year-to-date.

At some point you figure the good times of amazingly high yields, have to come to an end. After all, Windstream is highly leveraged and pays out more in dividends than it makes in earnings.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

  1. S&P 500 stood at 1.91%:
  2. Compare Brokers:
  3. TE:
  4. MO:
  5. POM:
  6. HCN:
  7. HCP:
  8. T:
  9. ESV:
  10. CTL:
  11. FTR:
  12. WIN:

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