Dividend stocks will likely come under some pressure as we get closer to a Federal Reserve rate hike. But there’s not much sign of weakness in divided stocks yet.
The dividend yield on the S&P 500 is still below 2%, for one thing. True, it has increased to 1.97% from 1.92% at this time last year, but that’s because companies have been funneling record amounts of cash into dividends.
Indeed, we’re in a sort of golden age of dividends. Adjusted for inflation, the S&P 500 paid almost $40 in dividends per share last year. A decade ago, S&P 500 real dividends per share came to a little more than $19 per share.
And yet yields are near all-time lows because stocks are hitting all-time highs. Furthermore, dividend stocks are enjoying a surge in popularity as low interest rates make bonds and other income paying assets less attractive.
Sure, the yield on dividends stock might be low, but at least there’s a chance for price appreciation — unlike with bonds.
That said, investors in dividend stocks need to be wary of chasing yield. There are a number of dividend stocks in the S&P 500 that offer dividend yields that rival or even exceed those of the lowest quality junk bonds. In most cases, however, it’s because the companies are in trouble, putting the payouts at risk.
In other cases, the stocks with the highest dividend yields in the S&P 500 are plenty reliable. From the dodgy to the stalwart, here are the top 10 S&P 500 dividend stocks for March. (Note: Dividend yields as of March 9.)
Top S&P 500 Dividend Stocks #10: Iron Mountain Inc (NYSE:IRM)
IRM Dividend Yield: 5.2%
Iron Mountain Inc (NYSE:IRM) returns to the list of top dividend stocks after a two-month absence, thanks to a mid-February plunge. Although IRM is still up an amazing 31% for the last 52 weeks, it’s down 7% for the year-to-date. Fourth-quarter earnings that missed Wall Street targets and only ho-hum earnings are to blame.
It was a blast of cold water for a stock that enjoying a hot run after the company was granted status as a real estate investment trust (REIT). And this latest hiccup may not be the last.
The strong dollar is making life tougher for IRM, as is increased competition. Fluctuations in recycled paper prices have been moving against the company, and there are secular headwinds too. Activity rates for stored records are in decline with the rise of online alternatives.
Top S&P 500 Dividend Stocks #9: Frontier Communications Corp (NASDAQ:FTR)
FTR Dividend Yield: 5.55%
When it comes to top dividend stocks, the sectors don’t vary all that much. REITs and master limited partnerships are always generous. The utilities sector is another place to look. And of course there are telecoms. Just look at Frontier Communications Corp (NASDAQ:FTR), one of a number of regional telcos with consistently huge dividend yields.
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. Indeed, it’s up a remarkable 52% 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 #8: HCP, Inc. (NYSE:HCP)
HCP Dividend Yield: 5.6%
REITs like HCP, Inc. (NYSE:HCP) 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 high-yielding dividend stocks. With a consistently high dividend yield, 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. HCP has been paying dividends since 1985, which is why it makes InvestorPlace’s list of Dependable Dividend Stocks.
At the same time, HCP’s stock has hit the skids in 2015, down 7% so far. Combine that with a recent dividend hike, and the yield is among the fattest on the market.
Top S&P 500 Dividend Stocks #7: AT&T Inc. (NYSE:T)
T Dividend Yield: 5.62%
Historically, it’s hard to beat telecommunications companies for steady, generous and dependable dividend stocks. Heck, just look at AT&T Inc. (NYSE:T). This soon-to-be-booted 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 blue-chip company.
Of course, sometimes you need to throw off a big dividend yield to keep shareholders sticking around when the price is letting them down. Even though you probably don’t own T for red-hot price upside, it still isn’t encouraging to see AT&T underperform the market by 7% over the last 52 weeks.
But hey, at least AT&T is committed to buying growth. In addition to a $50-billion deal to acquire DIRECTV (NASDAQ: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: Mattel, Inc. (NASDAQ:MAT)
MAT Dividend Yield: 5.93%
Blame in on Barbie. Toymaker Mattel, Inc. (NYSE:MAT) finds itself among the top 10 dividend stocks because falling prices boost dividend yields. MAT has been in a downtrend since last summer, and it only accelerated after weak holiday selling season.
As a result, MAT stock is already off 18% for the year-to-date, underperforming the broader market by about 19 percentage points, as very little went Mattel’s way in 2014, and the troubles just won’t go away.
Rival Hasbro, Inc. (NASDAQ:HAS) beat out Mattel for a lucrative deal to make dolls based on the hit Walt Disney Co (NYSE:DIS) movie Frozen last year, while Denmark’s Lego 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 #5: CenturyLink Inc (CTL)
CTL Dividend Yield: 6.1%
CenturyLink Inc (NYSE:CTL) is a telecommunications company that’s a longtime leader among S&P 500 dividend stocks, and the yield has started going up again as a red hot run for the stock comes to an end. After a torrid 2014, CTL is down 11% so far this year.
That’s more like what longtime shareholders are used to. Indeed, over longer periods of time, CTL has been a big-time market laggard. True, it’s still up 14% over the last 52 weeks — about 4 percentage points better than the S&P 500 — but it looks like concerns over a dwindling legacy business and higher costs have taken over.
At least the price drop has made the dividend look better. As dangerous as a 6% yield sounds, gushers of free cash flow make the dividend something investors can count on.
Top S&P 500 Dividend Stocks #4: Freeport-McMoRan Inc. (NYSE:FCX)
FCX Dividend Yield: 6.43%
Slumping prices for copper and gold have been hurting mining giant Freeport-McMoRan Inc (NYSE:FCX) for four years now, but the selloff really accelerated in the second half of 2014. Cut to today, and FCX is off almost 40% for the last 52 weeks.
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 #3: Noble Corp. (NYSE:NE)
NE Dividend Yield: 9.87%
And now we get to the saddest part of the top S&P 500 dividend stocks, where two of the top three 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 plc (NYSE: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, NE could find its dividend on the chopping block like others in the industry.
Top S&P 500 Dividend Stocks #2: Windstream Holdings, Inc. (NYSE:WIN)
WIN Dividend Yield: 13.04%
Windstream Holdings, Inc. (NYSE:WIN), like CTL, 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.
Also like CTL, the market fell out of love with this stock after a hot 2014. In late July, WIN shares hit intraday highs of $13-and-change, but it has since cooled off substantially. Now it goes for less $8, and the share price is down almost 9% for the year-to-date.
In addition to losing all of its mojo (and 52-week gains), 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)
RIG Dividend Yield: 19.33% (for now)
And now for the sad tale of a dividend stock yielding almost 20%, but not for much longer. Around this time about four months ago, Transocean LTD (NYSE: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 has lost 20% in 2015 alone, putting it down 65% 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, Wall Street analysts cutting their targets and ratings on the entire energy sector. The CEO recently jumped ship and — worst of all for RIG — the board of directors recently recommended that the company cut its dividend by 80%.
RIG won’t be the top dividend stock much longer.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.