The yield on the dividend stocks in the S&P 500 rose to 1.99% at the end of last week — the highest level since October — but that’s still a far cry from what most equity income investors would call a decent payout.
Of course, that’s just the lay of the land these days. Rock-bottom interest rates are pressuring yields on all assets classes, including dividend stocks, which compete with bonds for investors’ dollars.
Even funds designed to capture higher-yield dividend stocks aren’t offering anything eye-popping. For example, the Vanguard High Dividend Yield Index Fund Investor Shares (MUTF:VHDYX) has a trailing 12-month yield of just 2.81%.
Good. But not great.
So now, investors run the risk of chasing yield. Sure, a number of generous dividend stocks offer low risk profiles, but the stocks with the really big yields don’t look particularly safe. Indeed, it’s possible to find dividend stocks in the S&P 500 yielding as much as 17%. But how much longer they can sustain such payouts is very much in question, as many of these yields have soared because share prices have collapsed. Just have a look at what’s going on with the stocks of some offshore oil drillers.
In other cases, yields are hefty because the dividend stocks in question operate in payout-heavy sectors — telecommunications, for example — and have more cash than they know what to do with. These names tend to be a way to chase higher yield without taking on undue risk.
Either way, high-yield dividends abound. To get an idea of what’s out there, here are the 10 highest-yielding dividend stocks in the S&P 500. (Dividend yields as of April 20.)
Top S&P 500 Dividend Stocks #10: Wynn Resorts, Limited (WYNN)
WYNN Dividend Yield: 4.88%
Wynn Resorts, Limited (NASDAQ:WYNN) has seen its shares fall 40% over the last 52 weeks and 13% so far in 2015, pushing the yield up to some pretty heady levels.
And with the gambling industry in the throes of a prolonged slump, the stock won’t be bouncing back soon.
The biggest damage is being done by a Chinese crackdown on gambling. Tighter regulations have pushed Macau — the world’s No. 1 gambling destination — into a profound funk.
But even if the Chinese were to ease up on gambling, Macau would still have issues with the slower growth of the Chinese economy.
Back in the U.S., WYNN finds itself in the middle of a nasty proxy fight between the board and Elaine Wynn, the third-largest shareholder and Steve Wynn’s ex-wife.
Top S&P 500 Dividend Stocks #9: Oneok Inc. (OKE)
OKE Dividend Yield: 4.90%
Oneok Inc. (NYSE:OKE) returns to the list of top S&P 500 dividend stocks, and there’s little wonder why. OKE is in the energy business where prices have tumbled. OKE is the general partner of natural gas transport and storage firm Oneok Partners LP (NYSE:OKS), and gas prices are falling in sympathy with oil prices.
Despite declining natural gas prices, OK has only declined fractionally so far in 2015. Analysts believe that gas utilities will be in far better shape during the industry downturn than any company that engaged in the exploration and production of oil and natural gas, and so far, that’s what we’re seeing.
Meanwhile, the company’s dividend-friendly partnership structure results in a name throwing off a yield above 5%.
Top S&P 500 Dividend Stocks #8: Iron Mountain Inc (IRM)
IRM Dividend Yield: 5.15%
Iron Mountain Inc (NYSE:IRM) makes the list of top-yielding dividend stocks thanks to a February plunge. True, IRM staged an impressive mid-March rally, but it was not to last. Although IRM is still up an amazing 45% for the last 52 weeks, it’s down more than 4% for the year-to-date.
Fourth-quarter earnings that missed Wall Street targets and only ho-hum revenues are to blame.
It was a blast of cold water for a stock that enjoyed 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.
Fluctuations in recycled paper prices have been moving against Iron Mountain, not to mention, online alternatives are putting a dent into stored records.
Top S&P 500 Dividend Stocks #7: HCP, Inc. (HCP)
HCP Dividend Yield: 5.22%
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.
And because HCP is able to keep its dividend yield consistently high, it has become a regular on our monthly list of the S&P 500’s top yielders.
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 has hit the skids in 2015. It recovered from a low in early March, but is still down 2% YTD.
But combine that with a recent dividend hike, and the yield is among the fattest on the market.
Top S&P 500 Dividend Stocks #6: Mattel, Inc. (MAT)
MAT Dividend Yield: 5.68%
Toymaker Mattel, Inc. (NASDAQ:MAT) is on this list for the wrong reason — a slumping share price.
MAT shares have been mired in a longer-term downtrend since last summer — one that only accelerated after a weak holiday selling season.
The good news? Mattel put out a better-than-expected earnings report just a week ago that helped shares rebound, reducing its year-to-date losses to just 12%.
Still, MAT stock is underperforming the broader market by about 14 percentage points, thanks in large part to very little going Mattel’s way in 2014.
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 — one that continued in Q1 — which is by far the most important toy for the company.
Top S&P 500 Dividend Stocks #5: AT&T Inc. (T)
T Dividend Yield: 5.78%
Historically, it’s hard to beat telecommunications companies for steady, generous and dependable dividend stocks. Heck, just look at AT&T Inc. (NYSE:T). No, it’s no longer a member of the Dow Jones Industrial Average, but dividend investors don’t care. T has been throwing off a dividend since 1984, and it’s pretty much always the biggest dividend yield of any blue-chip company.
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 more than 20 percentage points over the last 52 weeks.
If nothing else, 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.
AT&T reports earnings this Wednesday after the bell.
Top S&P 500 Dividend Stocks #4: Frontier Communications Corp (FTR)
FTR Dividend Yield: 5.98%
A sustained selloff that started in February has Frontier Communications Corp (NASDAQ:FTR) on the cusp of a 6% dividend yield. True, telecoms are known as a dividend sector, but rising yields because of falling prices aren’t really what equity income investors are looking for.
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 74% over the last two years, more than doubling the performance of the broader market.
That run just might be over, however. Frontier is focusing on retaining customers and cutting costs, but it still missed quarterly revenue and earnings estimates. It also inked a deal back in February to buy all of Verizon Communications Inc. (NYSE:VZ) wireline operations in California, Florida and Texas — for $10.5 billion in cash.
Top S&P 500 Dividend Stocks #3: CenturyLink Inc (CTL)
CTL Dividend Yield: 6.13%
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 has come to an end.
After a torrid 2014, CTL is down more than 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, partly because of concerns over a dwindling legacy business and higher costs.
CTL is investing heavily in building out its broadband service, however, and 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 #2: Noble Corp. (NE)
NE Dividend Yield: 8.85%
Offshore oil drillers like Noble Corp plc (NYSE:NE) were hammered by the late 2014/early 2015 drop in oil prices, and that sent their yields skyward.
Benchmark crude oil prices hit lows not seen in more than five years, and that meant little incentive to add to supply. Low prices have rigs owned and operated by Noble charging painfully low day rates (or sitting uselessly idle).
NE stock is down more than 35% over the last 12 months, but it did bounce off a mid-March bottom, which had the yield knocking on the door of 10%.
As tempting as NE looks for income, investors need to beware that it could find its dividend on the chopping block like other names in the industry.
Top S&P 500 Dividend Stocks #1: Windstream Holdings, Inc. (WIN)
WIN Dividend Yield: 13%
Windstream Holdings, Inc. (NASDAQ: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 roughly $8, and the share price is slightly in the red this year.
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.
Windstream reports earnings in early May.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.