The Top 10 S&P 500 Dividend Stocks for December

Another month of record market highs weighed on yields of dividend stocks once again, but, boy, can you find some amazing outliers. Indeed, a serious pocket of weakness in a subsector of energy dividend stocks has produced a dividend yield of more than — wait for it — 16%. (Read on to see who it is.)

dividend stocksOf course, that’s not typical of the highest yielding dividend stocks in the S&P 500 this month, but it does underscore how ugly it can get for stocks in the wrong part of the market as as the bull continues to run.

And before you start licking your chops over such dividend stocks, be forewarned that any time you see dividend stocks with such insanely high yields, you have to worry that something is seriously wrong with that company and that the payout might not last.

Don’t forget: When it comes to dividend stocks, yields goes up as price declines. Any time a stock price drops enough to create such a yield, the market is trying to tell you something — and it’s not good news.

That said, most of the top S&P 500 dividend stocks for December are issuing such warnings and they haven’t changed much last month.

True, yields for the most part have actually come down as the market has continued to rise. But, heck, that’s been the story all year long. The S&P 500 is up 14% over the last 52 weeks, and the yield on the benchmark index has dropped to 1.92% from 1.98% over the same span.

There still are a number of dividends stocks throwing off gushers of yield, including — as mentioned above — some that seem too good to last for much longer. With that, here are the 10 highest-yielding dividend stocks in the S&P 500 this month.
(Note: Yields as of market close Dec. 5.)

Top S&P 500 Dividend Stocks #10: HCP Inc. (HCP)

hcp-stock-dividend-stocksHCP Dividend Yield: 4.92%

Real estate investment trusts (REITs) are required to pay out most of their income as dividends in exchange for certain tax breaks. That’s why so many REITs happen to be generous dividend stocks, like HCP Inc. (HCP).

HCP is a staple on any list of top dividend stocks, and not just for its generous payouts. It also happens to be about as a dependable a dividend payer as you can find, seeing as it hasn’t missed a payout since 1985. That’s why it makes InvestorPlace’s list of Dependable Dividend Stocks.

More recently, HCP has been delivering on price performance too. Shares are up 23% for the year-to-date, beating the broader market by 11 percentage points.

Top S&P 500 Dividend Stocks #9: Mattel (MAT)

Mattel MATMAT Dividend Yield: 5%

Poor Mattel (MAT). The toymaker surely likes to be known for paying a generous dividend, but not the way this 5% has come about. The yield is up because MAT stock has fallen so much this year, and there’s little hope for a big turnaround soon.

MAT stock is down 35% for the year-to-date, hurt by macro issues like sluggish consumer spending and a stronger dollar that makes its wares pricier on the international markets, but there are more company-specific problems too.

Rival Hasbro (HAS) beat out Mattel for a lucrative deal to make dolls based on the hit Walt Disney (DIS) movie Frozen. Even worse, Mattel is suffering a sales slump in Barbie toys, which is by far MAT’s most important business.

Top S&P 500 Dividend Stocks #8: Iron Mountain (IRM)

iron mountain irm 185IRM Dividend Yield: 5.1%

Iron Mountain (IRM) makes a fourth consecutive appearance as a top 10 S&P 500 dividend stock, and investors can expect it to maintain that distinction.

The document storage and management company was awarded status as a REIT in late September. Now that it has to pay out most of its earnings in dividends, IRM will continue to be a payout machine.

IRM hasn’t disappointed for recent price appreciation either. Shares are up about 34% for the year-to-date. Sure, Iron Mountain has delivered relentless growth thanks to gains in volume and strategic acquisitions, but the big lift to the stock (and dividend yield) was all thanks to getting that coveted REIT status. Indeed, shares are back at levels not seen since spring 2013.

Top S&P 500 Dividend Stocks #7: AT&T (T)

AT&T stockT Dividend Yield: 5.42%

After REITs, it’s hard to beat telecommunications companies for steady, generous and dependable dividend stocks. Heck, just look at AT&T (T). This member of the Dow Jones Industrial Average has been throwing off a dividend since 1984, and it’s pretty much always the biggest dividend yield of any company in the blue-chip average.

Of course, sometimes you need to throw off a big dividend yield to keep shareholders sticking around when the price is letting them down. No, you don’t own T for red-hot price upside, but it’s hardly ideal that the telco stock is off 3.6% for the year-to-date.

Hey, at least T is committed to buying growth. In addition to a $50-billion deal to acquire DirecTV (DTV), the telco more recently struck a $2.5 billion deal for the third-largest wireless company in Mexico.

Top S&P 500 Dividend Stocks #6: CenturyLink (CTL)

centurylink185CTL Dividend Yield: 5.44%

CenturyLink (CTL) is another telco that’s a longtime leader among S&P 500 dividend stocks, but the yield has come down rather dramatically as CTL stock has been taking off. Indeed, for CTL is up 25% for the year-to-date, more than doubling the performance of the broader market.

Over longer periods of time, CTL has been such a big-time market laggard, this year’s price appreciation must be downright disorienting for long-time holders. Those returns, however, are real. Heck, between the price change and fat dividend, CTL has a total return of 32% this year.

And lest you think CTL can’t keep it up, although there are never guarantees for price appreciation, gushers of free cash flow make the dividend something investors can bank on.

Top S&P 500 Dividend Stocks #5: Frontier Communications (FTR)

frontier-communications-ftr-stockFTR Dividend Yield: 5.8%

Yes, when it comes to top dividend stocks, the sectors from which they come doesn’t vary all that much. And so 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 crummy stock for years, which partly accounts for its dividend yield. But cut to today, and FTR stock is having a incredible 2014. Indeed, it’s up a remarkable 42% so far in 2014.

Frontier is focusing on retaining customers and cutting costs, and analysts think it 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 Corp. (NE)

energy stocks noble neNE Dividend Yield: 9.16%

And now we get to the saddest part of the top S&P 500 dividend stocks, where three of the top four highest yielders belong to one of the most beleaguered industries of 2014: oil drillers.

Benchmark crude oil prices are off more than 30% since June, and that means there’s little incentive to add to supply. That has rigs owed and operated by Noble Corp. (NE) and charging painfully low day rates (or sitting uselessly idle).

As a result, NE stock is now down by almost 60% in 2014 and the yield has climbed within striking distance of 10%. That’s a terrific deal for income if NE can keep up the payments, but with oil prices forecast to fall again in 2015, it’s still too soon to buy this name.

Top S&P 500 Dividend Stocks #3: Ensco PLC (ESV)

Ensco185ESV Dividend Yield: 9.7%

Ensco (ESV) is another oil and gas driller getting laid low by declining rates for rigs amid a soft energy market. Indeed, ESV has lost nearly 50% so far this year, lagging the broader market by about 62 percentage points.

Deepwater drilling stocks were thought to have bottomed out over the summer, but they’ve only been getting cheaper ever since. Heck, crude oil futures fell nearly 5% in the last week alone.

ESV stock does sport a massive dividend yield for new money, but investors need to realize there’s a risk. ESV — like NE and others — will be forced to cut that dividend it if the energy market weakens further. ESV might be worth it for its gusher of income, but oil prices will have to bounce back for shares to rise, to say nothing of keeping the dividend safe.

Top S&P 500 Dividend Stocks #2: Windstream Holdings (WIN)

windstream-win-stock-dividend-stocksWIN Dividend Yield: 10.3%

Windstream Holdings (WIN) — like CTL and FTR — is one of these regional telecom stocks with an ugly long-term chart that has really turned things around this year. It also sports a massive dividend. Indeed, WIN was a monthly lock for No. 1 S&P 500 dividend payer until the deepwater drillers sunk on low oil prices.

WIN stock is up 21% for the year-to-date, but it has been losing steam since mid-summer. Shares go for a little less than $10 these days, but in late July they were hitting intraday highs of $13-and-change.

Lastly, although WIN pays out more in dividends than it earns in profit, it has more than enough levered free cash flow to keep the stream coming.

Top S&P 500 Dividend Stocks #1: Transocean (RIG)

Transocean185RIG Dividend Yield: 16%

And now for the sad tale of that dividend stock yielding 16% we mentioned above. Around this time a month ago, Transocean (RIG) — a deepwater driller — had a dividend yield of about 10%. The stock fell off a cliff since then, sending the yield up to today’s spit-take levels.

Indeed, RIG lost nearly 40% over the last month, putting it down nearly 65% for the year-to-date. And there’s little RIG can do about it.

Oil prices continue to decline with no let up in sight. Heck, OPEC just affirmed its production targets because it would rather suffer low prices than lose market share. That has Wall Street analysts cutting their targets and ratings on the entire energy sector. Moreover, the industry is rife with anxiety that 2015’s drilling projects are on the chopping block.

That 16% dividend yield is enticing … but it’s far from safe.

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

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