The Top 10 S&P 500 Dividend Stocks for January

Tumbling oil prices are causing some of the dividend stocks in the S&P 500 with the highest yields to reach almost absurd levels. Last month one S&P 500 dividend stock threw off a yield of 16%, and that seemed like it could hardly be beat.

best dividend stocksAfter all, when a stock gets punished hard enough to make the yield hit those kind of levels, you figure its only a matter of time before the company is forced to cut its payouts. But we’re not exactly there yet. Believe it or not, the top paying dividend stock in the S&P 500 now yields an eye-popping 19.6%.

The line up of top-paying S&P 500 dividend stocks saw some significant changes this month. The drop in oil prices is not only raising yields, but it’s also introducing some new names to the list. Elsewhere, lower copper prices hurt shares of a well-known commodity stock, lifting it onto the list of top 10 S&P 500 dividend stocks.

The stocks-down/yields-up phenomenon lifting so many energy names’ dividend yield has even displaced some long-standing dividend champs. No longer do any healthcare REITs make the cut. Heck, nine of the top 10 S&P 500 dividend stocks are energy or telecommunications names.

With dividend yields ranging from more than 5% to nearly 19%, here are the dividend stocks in the S&P 500 with the highest yields. As always, proceed with caution when considering any stock with a crazy-high yield. (Note: All data as of noon, January 12.)

Top S&P 500 Dividend Stocks #10: Freeport-McMoRan Inc. (FCX)

Freeport-McMoRan Copper & Gold FCX logoFCX Dividend Yield: 5.48%

Slumping prices for copper and hold have been hurting mining giant Freeport-McMoRan Inc. (FCX) for four years now, but the selloff really accelerated in the second half of 2014. Cut to today, and FCX is off more than 40% in the past six months.

And FCX could see more downside soon. Global economic weakness isn’t helping prices in the $140 billion copper market — neither are the miners and smelters. Indeed, industry players are keen on increasing copper production despite softness in prices.

FCX is hardly a dumpster fire, however. Analysts say it generates good free cash flow from operations, trades at a reasonable valuation and has expanding profit margins.

Top S&P 500 Dividend Stocks #9: Williams Companies, Inc. (WMB)

Williams Companies logoWMB Dividend Yield: 5.53%

Williams Companies, Inc. (WMB) is a new entrant to the top S&P 500 dividend stocks this month and, yes, it’s an energy stock. The energy infrastructure company owns the controlling interests in infrastructure plays Williams Partners L.P. (WPZ) and Access Midstream Partners L.P. (ACMP).

It took a a recent fall in WMB stock to lift the yield above 5%. Shares are down 18% over the last three months, hurt by the continuing slump in oil prices.

Still, if there’s a bright spot to the weakness, energy analysts think MLPs like those that Williams controls are in far better shape to weather the downturn than other parts of the industry like production and exploration companies.

Top S&P 500 Dividend Stocks #8: CenturyLink, Inc. (CTL)

centurylink185CTL Dividend Yield: 5.59%

CenturyLink (CTL) is a telecommunications company 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, CTL is up 25% over the last 52 weeks, 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 generated a total return of 32% in calendar 2014.

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 #7: AT&T (T)

AT&T stockT Dividend Yield: 5.59%

Historically, 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 probably don’t own T for red-hot price upside, but it’s hardly ideal that the telco stock is flat over the last 52 weeks.

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: Oneok Inc. (OKE)

oneok-inc-oke-185OKE Dividend Yield: 5.72%

Oneok Inc. (OKE) is another new name this month making our list of top S&P 500 dividend stocks and — guess what — it has an energy connection. OKE is the general partner of natural gas transport and storage firm Oneok Partners LP (OKS), and gas prices are falling in sympathy with oil prices.

Oil prices have sent OKE stock down about 25% over the last three months. Combine that with the company’s dividend-friendly partnership structure, and you’ve got a name throwing off a yield above 5%.

Fortunately for anyone holding OKE stock, analysts believe that gas utilities will be able in far better shape during the industry downturn than any company that engaged in the exploration and production of oil and natural gas.

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

frontier-communications-ftr-stockFTR Dividend Yield: 5.96%

Yes, when it comes to top dividend stocks, the sectors don’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 an incredible run 2014. Indeed, it’s up a remarkable 41% over the last 52 weeks.

Frontier is focusing on retaining customers and cutting costs, and analysts think it will post profit a second straight year of higher profits in 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: 9.67%

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 that most beleaguered of industries — oil drillers.

Benchmark crude oil prices are hitting lows not seen in more than five years, and that means there’s little incentive to add to supply. Low prices have 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 more than 50% over the last 12 months 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 keep falling, it’s still too soon to buy this name.

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

Ensco185ESV Dividend Yield: 10.59%

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 50% over the last 52 weeks, lagging the broader market by more than 60 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 more than 4% 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, Inc. (WIN)

windstream-win-stock-dividend-stocksWIN Dividend Yield: 11.93%

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

In late July, WIN shares were hitting intraday highs of $13-and-change, but it’s since cooled off substantially. Now it goes for $8 and the stock is up only 5% over the last year.

In addition to losing essentially all of its mojo, WIN pays out more in dividends than it earns in profit. Although WIN has more than enough levered free cash flow to keep the dividend stream coming, that alone makes plenty of investors uneasy about sticking with the name.

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

Transocean185RIG Dividend Yield: 19.57%

And now for the sad tale of that dividend stock yielding the 19% we mentioned above. Around this time about three months ago, Transocean (RIG) — a deepwater driller — had a dividend yield of about 10%. The stock has fallen off a cliff since then, sending the yield up to today’s spit-take levels.

Indeed, RIG lost nearly 50% over the last three months, putting it down nearly 70% for the trailing 52 weeks. And there’s little RIG can do about it.

Oil prices continue to decline with no let up in sight. Heck, OPEC is determined to maintain production targets because it wants to keep its market share (and put shale-oil producers out of business.) OPEC’s actions have Wall Street analysts cutting their targets and ratings on the entire energy sector. Moreover, the industry is rife with anxiety that this year′s drilling projects are on the chopping block.

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

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