Stocks are suffering a rare selloff — the worst since February — and that’s threatening to erase all of 2014’s already modest gains for everything from momentum stocks to dividend stocks. The S&P 500 is now up just 3% for the year-to-date. The blue-chip Dow Jones Industrial Average has slipped into negative territory for the year.
If there is a sliver of a silver lining in the market’s prolonged slump, it’s that yields on dividend stock have picked up smartly for new money. Indeed, the dividend on the S&P 500 rose to 2.01% from 1.91% a month ago. No, that’s not a whopping move, nor does it represent a gusher of income. On the other hand, the top-paying dividend stocks in the S&P 500 surely do.
Dividend yields ranging from about 5% to more than 10% from big, stable companies abound in the broad-market index. True, many of these yields are so high because the stocks have been beaten so low, but there’s also offsetting a chunk of those losses. Besides, and stock that’s getting slammed is always worth studying to see if it offers a bargain. The idea, remember, is to buy low.
You’ll have to do your own due diligence in these dividend stocks to see if they fit with your portfolio, but there’s no denying that these payouts are fat. Furthermore, the slumping S&P 500 has shaken up the list of the top-paying S&P 500 dividend stocks for the first time in months with two new entrants to the club.
Here are the top dividend stocks in the S&P 500 for October. [Note: All yields are as of 11:00 a.m. ET, Oct. 14.]
Top S&P 500 Dividend Stocks #10 — Mattel (MAT)
MAT Dividend: 5.03%
Toymaker Mattel (MAT) breaks into the top 10 dividend stocks this month, but anyone holding shares sure wish it didn’t. Mattel’s dividend yield is sitting on the cusp of 5% because MAT stock is having a disastrous year.
MAT stock is down 36% for the year-to-date, underperforming the broader market by nearly 40 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 #9 — HCP (HCP)
HCP Dividend: 5.07%
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. 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.
At the same time, HCP’s fundamentals have been propelling shares too. HCP stock is up 18% so far this year.
Top S&P 500 Dividend Stocks #8 — AT&T (T)
T Dividend: 5.43%
Telecommunications is always a good sector to look at for generous dividend stocks, even if telcos are making the headlines recently for industry consolidation.
The big news this year for AT&T (T) remains its offer to buy DirecTV (DTV), which should go through, 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. Indeed, the blue chip always makes the list of top payers in the S&P 500. Price appreciation has been another matter, though. T stock is off about 3% YTD.
Top S&P 500 Dividend Stocks #7 — Iron Mountain (IRM)
IRM Dividend Yield: 5.50%
Iron Mountain (IRM) is another newcomer to the top 10 S&P 500 dividend stocks this month with a yield knocking on the door of 6%.
Even better, IRM didn’t get to that fat dividend level by selling off. On the contrary. Shares are up about 20% 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 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 #6 — CenturyLink (CTL)
CTL Dividend: 5.58%
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 22% for the year-to-date, outpacing the S&P 500 by 20 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 (FTR)
FTR Dividend: 6.96%
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 dog of a stock for ages, 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 29% so far in 2014. It has, however, taken a drubbing in the broader market selloff.
At any rate, FTR is focusing on retaining customers and cutting costs. Analysts think FTR 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 (NE)
NE Dividend Yield: 7.39%
Now we come to the saddest part of the list, where three of the top four dividend payers come from the deepwater drilling industry. The sluggish global economy and boom in U.S. energy production is weighing on prices, and therefore demand for rigs. That’s why Noble (NE) is off about 50% for the year-to-date.
If there’s a bright spot, the poor price performance has lifted the dividend yield on Noble to nearly 8%. At least anyone buying in at this level will have a decent income stream while waiting for an upturn in the industry.
However, they may have to wait for some time. Noble’s latest fleet report was a compendium of stagnant dayrates and soon-to-expire contracts. The technicals are poor, too.
Top S&P 500 Dividend Stocks #3 — Ensco (ESV)
ESV Dividend: 7.97%
Rates paid for deepwater drillers are in decline and that’s crushing stocks like Ensco (ESV), which is down 35% so far this year. Indeed, the selloff has been so relentless and steep, the dividend yield on ESV stock leaped to nearly 8% — up from 6.4% a month ago.
Deepwater drilling stocks were though to have bottomed out over the summer, but they’ve only been getting cheaper ever since. Persistently weak global oil prices won’t let shares breathe anytime soon.
ESV stock does sport a massive dividend yield for new money. If you want a gusher of income and can wait for energy demand to bounce back, ESV might be worth a look.
Top S&P 500 Dividend Stocks #2 — Windstream Holdings (WIN)
WIN Dividend: 10.21%
The long-reigning champ of top-paying S&P 500 dividend stocks was finally knocked off its perch. Windstream Holdings (WIN) still delivers a huge dividend, but the yield sure is down a lot this year. Yes, WIN is yielding 10.21% vs. 8.8% a month ago — more than your average junk bond — but that yield was above 12% when the year started.
Happily, that’s because WIN stock is up 23% for the year-to-date. This long-suffering stock now has a positive five-year chart, having bounced back from lows not seen since the financial crisis.
Windstream is highly leveraged and pays out more in dividends than it makes in earnings. It does, however, generate more than ample free cash after paying interest expense, and that will keep the dividends coming.
Top S&P 500 Dividend Stocks #1 — Transocean (RIG)
RIG Dividend: 10.34%
The new top-paying dividend stock in the S&P 500 is — you guessed it — a deepwater driller. Transocean (RIG) is yet another offshore driller than can’t do much about stagnant energy prices — and its stock price has been getting clobbered for it.
RIG is off more than 40% for the year-to-date. In addition to a lower rate (and 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.
Every time RIG looks to have found a floor in 2014, it has managed to disappoint once again. That keeps upping the dividend yield, but the total return is still deep in the red.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.