The Top 10 S&P 500 Dividend Stocks for August

Tumbling oil prices and an upcoming rate hike have shares falling and dividend yields rising

High yields, believe it or not, can actually be a warning sign when it comes to dividend stocks — and that’s abundantly clear from the S&P 500 stocks with some of the highest-percentage payouts these days. After all, the broader market yields only about 2%, but the lowest yield on this list of dividend stocks stands at more than 5%.

The Top 10 S&P 500 Dividend Stocks for AugustMostly these dividend stocks have high yields because their share prices have fallen so far. In some cases it’s due to company-specific problems, but more often it’s because of the steep slump in oil prices. Energy-sector stocks are overrepresented on this list of highest-yielding dividend stocks.

Real estate investment trusts also have become a mainstay of this list because investors are leery of income-centric stocks ahead of a Federal Reserve rate hike.

But as much as some of these dividend stocks may be in trouble, others — mostly the telecommunications companies — have the cash flow to make good on their payouts. To be sure, share-price declines have wiped out any hope of positive total returns for the year-to-date, but new money can at least count on hefty dividends coming in.

To get a sense of what’s available among the bigger dividend stocks, here are the 10 S&P 500 dividend stocks with the highest yields as of Aug. 10:

Top S&P 500 Dividend Stocks #10: CenterPoint Energy (CNP)

centerpoint-energy-inc-cnp-stock-185CNP Dividend Yield: 5.1%

CenterPoint Energy (CNP) bounced off a 52-week low at the end of July, but it’s still off 17% for the year-to-date, and that has the yield cracking the 5% level. As long as energy prices continue to languish, share-price appreciation for this utility is going to remain elusive.

After all, prices for natural gas and electricity trade in line with each other, and both are under pressure from the huge drop in oil prices. That has utilities in the energy sector like CNP struggling with top-line growth, not to mention share-price appreciation.

A dividend yield of more than 5% might looking tempting to new money, but be forewarned that it won’t be a surprise if CNP stock continues to drift lower in the months ahead.

Top S&P 500 Dividend Stocks #9: AT&T (T)

Top S&P 500 Dividend Stocks #9: AT&T (T)T Dividend Yield: 5.41%

This is the kind of year it has been for equities: Boring, old AT&T (T) — the heavy-paying blue-chip dividend stock — is beating the broader market by a significant margin. Indeed, T is up more than 3% for the year-to-date. The S&P 500, meanwhile, has gained 1%.

Interestingly, getting booted from the Dow Jones Industrial Average might have been the best thing that has happened to AT&T in years.

Shares are up nearly 5% since mid-May. Add in the always-generous dividend, and AT&T has been a total return champion in an otherwise lackluster year for equities.

Of course, you don’t buy telecommunications stocks for price appreciation. As a classic defensive name with ample cash flow, T is as solid a widows-and-orphans stock as they come.

Top S&P 500 Dividend Stocks #8: ConocoPhillips (COP)

Top S&P 500 Dividend Stocks (#8): ConocoPhillips (COP)COP Dividend Yield: 5.9%

August marks the first time an oil major makes the list of highest paying S&P 500 dividend stocks. Low oil prices have beaten ConocoPhillips (COP) stock to the point where the yield is approaching 6%.

The fortunes of oil companies like COP are directly tied to the price of oil, and that’s forcing ConocoPhillips to slash costs as fast as it can.

Unfortunately, as we saw with quarterly earnings, steep declines in the exploration and drilling side of the equation more than offset any benefit from a big drop in operational costs.

ConocoPhillips is planning for a period of lower, more volatile prices, and management is right to do so. There’s not much upside to oil prices these days, and neither is there for COP stock.

Top S&P 500 Dividend Stocks #7: HCP, Inc. (HCP)

Top S&P 500 Dividend Stocks #7: HCP, Inc. (HCP)HCP Dividend Yield: 6%

Shares in this healthcare REIT showed some signs of life at the beginning of the month, but couldn’t stay on it — HCP, Inc. (HCP) still is down more than 13% for the year-to-date.

It’s just tough to be a REIT these days.

REITs like 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.

Unfortunately, investors are leery of REITs heading into a rising-rate environment. As with dividend stocks, REITs compete with bonds for investors’ dollars.

And although HCP has proven to be a solid defensive stock, the market doesn’t much like its shorter-term prospects. In addition to the rate hike, HCP is dependent on a limited number of operators and tenants, and that can put cash flow at risk.

Top S&P 500 Dividend Stocks #6: Kinder Morgan (KMI)

Top S&P 500 Dividend Stocks #6: Kinder Morgan (KMI)KMI Dividend Yield: 6%

After a long absence, Kinder Morgan (KMI) returns to the list of S&P 500 dividend stocks with the highest yields … but not for the best of reasons.

KMI’s yield is up because shares have essentially collapsed in the last three months. Indeed, they’re down about 24% since mid-May.

There’s no mystery as to why. Plunging energy prices have claimed another victim. As the operator of a vast network of oil and gas pipelines, Kinder Morgan is as vulnerable as any company in the sector. A disappointing quarterly earnings report only solidified the market’s sour sentiment

Some would argue that KMI is bargain-basement cheap, and that’s probably the case if you can wait for oil prices to reverse the trend.

The problem? You might have to wait for years for that to play out.

Top S&P 500 Dividend Stocks #5: Mattel (MAT)

Top S&P 500 Dividend Stocks #5: Mattel (MAT)MAT Dividend Yield: 6.5%

Toymaker Mattel (MAT) is in the midst of a turnaround, but it sure is taking a long time. MAT has been a rotten stock for a year-and-a-half now and is down 25% YTD alone.

MAT shares have been mired in a downtrend that only accelerated after a weak holiday selling season. Declining sales of Barbie toys — its most important product by far — are largely to blame, but other toys have failed to find traction, as well.

A new management team gives hope to some analysts that Mattel will be OK, but it’s hard to ignore how far its fallen behind rival Hasbro (HAS). The tickers really tell the tale: HAS is up some 43% year-to-date, nearly double the magnitude of MAT’s losses.

Meanwhile, Wall Street can muster little enthusiasm for the name. Of the 13 analysts covering the stock, eight call it a “hold” and one calls it a “sell,” according to Thomson Reuters.

Top S&P 500 Dividend Stocks #4: Iron Mountain (IRM)

Top S&P 500 Dividend Stocks #4: Iron Mountain (IRM)IRM Dividend Yield: 6.6%

Iron Mountain (IRM) — another REIT — is getting hammered in 2015, which is an effective way to lift a dividend yield, but not the one you’d like. Partly that’s because of the market’s general dislike of REITs ahead of a rate hike, but IRM has plenty of company-specific problems too.

IRM went into free fall at the start or summer when an analyst downgraded it to “underperform” (sell) because of a “chronic cash shortfall.” The plunging price also forced IRM to renegotiate its deal to purchase an Australian counterpart.

If that wasn’t enough, IRM missed quarterly revenue estimates due to fluctuations in recycled paper prices, the stronger dollar and online alternatives to stored records.

Iron Mountain is now down 25% for the year-to-date. With everything that’s hitting IRM stock, there’s good reason to expect more price weakness ahead.

Top S&P 500 Dividend Stocks #3: Oneok (OKE)

Top S&P 500 Dividend Stocks #3: Oneok (OKE)OKE Dividend Yield: 6.8%

Oneok (OKE) stock sold off sharply at the end of July to hit a four-year low under $35, and that has kept it aloft on this list of high-yield dividend stocks.

As the general partner of natural gas transport and storage firm Oneok Partners LP (OKS), OKE finds it self in the tough position of being an energy stock in an oil-price slump.

Sure, analysts say gas utilities should be in better shape than other energy players in the current industry downturn, but that’s of little comfort to anyone holding Oneok, which is off nearly 30% for the year-to-date.

That said, the dividend appears safe for now. OKE recently reaffirmed its cash flow available for dividends outlook of $570 million to $650 million and free cash flow guidance of $90 million to $120 million for 2015.

Top S&P 500 Dividend Stocks #2: CenturyLink (CTL)

Top S&P 500 Dividend Stocks #2: CenturyLink (CTL)CTL Dividend Yield: 7.6%

As much as oil prices have populated this list with energy-sector stocks, the top spots still belong to regional telecom companies like CenturyLink (CTL).

CTL is well known for having almost absurdly high dividend yields, and a nearly 30% collapse in the share price so far in 2015 has done nothing to dispel that impression.

That’s how it goes with regional telcos as customers continue to ditch their landlines. True, CTL investing heavily in building out its broadband service, but a dwindling legacy business and higher costs rightfully scare the market.

The good news is that despite the high yield, CTL has always been good for it. As dangerous as a level of 7.6% sounds, CTL has the gushers of free cash flow to back it up.

Top S&P 500 Dividend Stocks #1: Frontier Communications (FTR)

Top S&P 500 Dividend Stocks #1: Frontier Communications (FTR)FTR Dividend Yield: 7.9%

The surprisingly dubious honor of being the S&P 500’s top dividend yielder goes to regional telco Frontier Communications (FTR), yet another cash-flow machine.

As amazing as a yield of almost 8% looks, it doesn’t make up for steep losses in share price. Indeed, FTR is down 20% for the year-to-date. It has been a terrible long-term holding as well.

FTR managed to stabilize revenue from business and residential customers in the most recent quarter, and made good progress in adding broadband customers. That said, even if the core business of landline service isn’t in secular decline, neither does it have much chance of growth.

Beyond all that, ample free cash flow makes the FTR dividend one investors can count on.

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

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