The Top 10 S&P 500 Dividend Stocks for May

by Dan Burrows | May 12, 2014 2:30 pm

What a difference a month makes. The last time we looked at the top dividend stocks in the S&P 500, the market was in a funk, negative for the year-to-date, and it looked like the fear trade would be here for a while.

dividend stocks dollar arrow dividend stocks[1]Cut to today: The S&P 500 has rallied 3.5% over the last month, and is back up to record-high territory.

As we noted the last time we looked[2] at the top dividend stocks in the S&P 500, if there’s a bright side to falling stock prices, it’s that it makes the yields on dividend stocks go up. (As with bonds, yields and prices move in opposite directions).

But now that the S&P 500 has reverted back to gains, aggregate yields on dividend stocks have been ever so slightly clipped. The market’s dividend yield stands at 1.96%, down from 1.99% a month ago.

Of course, not all dividend stocks and bonds throw off such paltry yields. The benchmark index includes dividends stocks yielding anywhere from about 5% to nearly 11%.

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 May. (Note: All dividend yields are as of market close May 9.)

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#10: Health Care REIT (HCN)

health-care-reit-hcn-stock-dividend-stocks[4]HCN Dividend Yield: 4.94%

Real estate investment trusts (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. With a consistently high dividend yield, Health Care REIT (HCN[5]) has become a staple of this list of dividend stocks.

HCN enjoys a solid portfolio of senior housing, long-term care and medical office facilities, and operations are currently humming along. For the most recent quarter, HCN delivered a beat-and-raise quarter. HCN stock is up 20% for the year-to-date, beating the broader market by 18 percentage points.

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#9: AT&T (T)

AT&T-t-stock-dividend-stocks[6]T Dividend Yield: 5.05%

Telecommunications are another sector to look at for generous dividend stocks. Blue chip AT&T (T[7]) always lands among the best paying dividend stocks in the S&P 500 and Dow Jones Industrial Average.

There’s always something keeping T stock in the news. A month ago, it was all about a price war with T-Mobile U.S. (TMUS[8]). Now it’s a story with much higher stakes. AT&T has been holding talks with DirectTV (DTV[9]) about a possible acquisition. Whether a deal comes to pass is a matter of speculation, but with Comcast’s (CMCSA[10]) plan to acquire Time Warner Cable (TWC[11]), we’re sure to hear more rumors like this — and some will stick.

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#8: Teco Energy (TE)

Teco Energy 185[12]TE Dividend Yield: 5.07%

Teco Energy (TE[13]) first broke into the top S&P 500 dividend stocks in February and it has stayed there with its generous yield. Unfortunately for shareholders, TE stock hasn’t been nearly as good to them on price appreciation.

Better-than-expected quarterly earnings and relatively positive guidance fueled this utility stock with optimism for earlier in the year. Indeed, at one point last month, TE stock was leading the S&P 500 for the first time in a couple of years. Then TE missed quarterly earnings and revenue forecasts and the optimism evaporated. TE stock essentially flat for the year-to-date, lagging the broader market by about percentage point.

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#7: HCP (HCP)

hcp-stock-dividend-stocks[14]HCP Dividend Yield: 5.18%

HCP (HCP[15]) is another REIT that’s no stranger to the list of top dividend stocks. However, the yield on HCP has been like a slowly melting iceberg — even after a dividend. With its shares rallying, the yield on HCP has slipped from 5.83% as recently as March.

It’s hard to get mad at HCP stock for putting up such strong price appreciation. Indeed, HCP is having an excellent year for a big dividend payer, putting up a gain of 16% so far in 2014. A beat-and-raise first quarter — helped by higher revenue, not cost cuts — no doubt gave HCN stock a nice tailwind.

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#6: Kinder Morgan (KMI)

Kinder Morgan logo[16]

KMI Dividend Yield: 5.23%

Kinder Morgan (KMI[17]) an operator of oil and gas pipelines, breaks in the top dividend stocks this month, but for mixed reasons. On the positive side, KMI last month hiked its dividend. But the dividend yield is rising mostly because KMI stock is falling.

For the most recent quarter, KMI earnings missed Wall Street forecasts by 5 cents per share even as revenue easily topped estimates. That only added to the pressure on KMI stock, which is now off more than 10% for the year-to-date.

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#5: Transocean (RIG)

Transocean185[18]RIG Dividend Yield: 5.37%

Offshore driller Transocean (RIG[19]) makes the top 10 dividend stocks for a third consecutive month. Unfortunately for anyone holding Transocean stock, the dividend yield propelled it into the top 10 only because the stock has fallen so far. RIG stock is down a painful 14% for the year-to-date, hurt by a large number of rigs coming off contract.

Happily for shareholders, however, is the fact that RIG appears to have found a bottom. Quarterly earnings beat Wall Street forecasts, and the market also likes the RIG restructuring plan, which will spin off eight rigs into a new publicly traded company.

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#4: CenturyLink (CTL)

centurylink185[20]CTL Dividend Yield: 5.91%

And now for the most amusing part of the list. CenturyLink (CTL[21]) is the one of three telecom stocks that always hit the top spots for dividend stocks with their crazy-high dividend yields and poor long-term price performance.

That said, things have been going great up for CTL stock lately. Shares are up 16% for the year-to-date, easily outpacing the S&P 500. The upside in price has dropped the yield on CTL below 7%, but given that the stock is still negative over the last 52 weeks, shareholders probably aren’t complaining.

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#3: Ensco (ESV)

Ensco185[22]ESV Dividend Yield: 5.92%

Like rival Transocean, Ensco (ESV[23]) is an offshore driller getting hurt by stagnant oil prices and the resulting slowdown in rates paid. That said, ESV did manage to surpass analysts’ quarterly earnings forecast even as profits fell year-over year.

Rigs aren’t getting used as much in this oil-price environment, and that’s weighing heavily on ESV stock. Shares are off 11% so far this year. Like all dividend stocks, a falling share price makes the yield go up. In this case, a dividend yield of nearly 6% might make ESV worth the risk, but what the sector really needs is greater demand for oil.

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#2: Frontier Communications (FTR)

frontier-communications-ftr-stock[24]FTR Dividend Yield: 6.6%

Once again, Frontier Communications (FTR[25]) grabs the No. 2 spot for the top S&P 500 dividend stocks. This long-suffering stock is having a incredible year, though, gaining 29% for the year-to-date. That comes in spite of a mixed first-quarter performance in which both earnings and revenue missed Wall Street projections.

FTR is focusing on retaining customers and cutting costs. Although earnings per share are expected to decline this year, analysts think FTR will post a profit increase in 2015.

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#1: Windstream Holdings (WIN)

windstream-win-stock-dividend-stocks[26]WIN Dividend Yield: 10.88%

 WIN stock is a telecom that has posted some ugly longer-term returns. Lately, though, the rising stock price makes the five-year performance for WIN stock positive, having bounced back from lows not seen since the financial crisis.

Like CenturyLink and Frontier Communications, Windstream Holdings (WIN[27]) is having an excellent year. WIN stock is up more than 15% so far in 2014. That has the yield falling below 11% — but so what? That still crushes even the highest-yielding junk bonds. And like junk bonds, WIN is rather risky. Windstream is highly leveraged and pays out more in dividends than it makes in earnings.

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

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  2. the last time we looked:
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  5. HCN:
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  7. T:
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  9. DTV:
  10. CMCSA:
  11. TWC:
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  13. TE:
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  15. HCP:
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  17. KMI:
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  19. RIG:
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  21. CTL:
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  23. ESV:
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  25. FTR:
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  27. WIN:
  28. Dividend Insights e-letter:

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