The market plunged since the last time we looked at the S&P 500 dividend stocks with the highest yields. So, sure enough, those yields have only gotten higher.
Like bonds, the yield on a dividend stock moves in the opposite direction of its price. That’s why the yield on the S&P 500 is up to 2.2% vs. 1.91% a year ago, according to money-manager Birinyi Associates.
In addition to a general market draw down, dividend stocks are getting hit with more specific worries. For one, a Federal Reserve rate hike makes dividend stocks less attractive relative to bonds. What’s more, the collapse in oil prices is hammering dividend stocks across the energy sector — whether they deserve it or not.
A falling share price doesn’t make any stock look particularly compelling, especially when it overwhelms any chance of positive total returns. That said, new money can take advantage of some truly huge yields at current levels and perhaps find some bargains too.
Just be careful out there. A sky-high yield is often a sign that something is seriously wrong with a dividend stock.
Here are the S&P 500 dividend stocks with the highest yields as of Sept. 15:
Top S&P 500 Dividend Stocks #10: Garmin (GRMN)
GRMN Dividend Yield: 5.6%
Garmin (GRMN) cracks the list of S&P 500 dividend stocks with the highest yields this month in pretty much the worst possible way.
After all, the quarterly payout of $2.04 a share hasn’t budged. Rather, it’s GRMN’s plunging share price that has lifted the yield to such lofty levels.
GRMN is facing a host of problems, including market-share loss in personal navigation devices, increased competition in the fitness segment and the stronger dollar. All that has GRMN stock down by a third so far this year.
Sure, new money can get in a fat yield, but it might want to wait. GRMN stock looks like it has room to fall.
Top S&P 500 Dividend Stocks #9: AT&T (T)
T Dividend Yield: 5.7%
Good ol’ AT&T (T). It’s a boring defensive blue-chip, and yet the telecommunications play is beating the broader market by more than a percentage point.
Recent share-price declines make T’s dividend look generous for new money. True, the stock is down 2.3% for the year-to-date, but then, you don’t buy telecommunications stocks for price appreciation.
Indeed, T is doing exactly what it should. It’s holding up better than the S&P 500 in a down market.
As a battleship of a dividend payer with ample cash flow, T is about as solid a widows-and-orphans stock as you can find.
Top S&P 500 Dividend Stocks #8: HCP (HCP)
HCP Dividend Yield: 6%
Shares in real estate investment trusts like HCP (HCP) come under pressure when the Federal Reserve hikes rates.
Yes, dividend stocks in general get hurt by higher rates because they compete with bonds for investors’ dollars. REITs take a disproportionate beating because paying out a majority of earnings as dividends is what they’re all about.
HCP — down 15% YTD — faces fundamental headwinds, too. HCP is dependent on a limited number of operators and tenants, and that can put cash flow at risk.
New money can get a yield of more than 6%, but it needs to be patient on share price gains.
Top S&P 500 Dividend Stocks #7: ConocoPhillips (COP)
COP Dividend Yield: 6.1%
Energy stocks like ConocoPhillips (COP) are getting hammered by the collapse in oil prices. COP is off 30% for the year-to-date and roughly 40% since oil prices turned south last year.
Like other diversified oil majors, COP is slashing costs as fast as it can to make up for the loss of revenue from low oil prices.
Unfortunately, steep declines in the exploration and drilling side of the equation more than offset any benefit from a big drop in operational costs.
If there’s a bright side, it’s that COP stock appears to have stabilized on the price side of things and it offers a big dividend yield for new money.
Top S&P 500 Dividend Stocks #6: Kinder Morgan (KMI)
KMI Dividend Yield: 6.4%
Kinder Morgan’s (KMI) yield is pretty darn high, but only because shares have essentially collapsed. Indeed, they’re down 30% for the year-to-date.
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. The company insists that the price of oil has no bearing on results — it’s a toll-taker on the movement of natural gas and oil — but the market doesn’t see it that way.
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.
Top S&P 500 Dividend Stocks #5: Mattel (MAT)
MAT Dividend Yield: 6.4%
Mattel (MAT) has been a miserable stock for a year-and-a-half and now it has another indignity to suffer. Privately held Lego has surpassed it as the world’s largest toymaker.
That doesn’t matter to operational performance, but it does underscore MAT’s many woes.
Among the troubles: Key products lines like Barbie are suffering declines in revenue. MAT lost some key licenses. And, of course, there’s the negative effects of a stronger dollar.
Some signs of strength in Fisher-Price, Hot Wheels and American Girl led Oppenheimer to upgrade MAT in August to “outperform” (“buy,” essentially.)
But if MAT doesn’t bounce back with a good holiday selling season, its 23% YTD decline will only get wider.
Top S&P 500 Dividend Stocks #4: Iron Mountain (IRM)
IRM Dividend Yield: 6.6%
Iron Mountain (IRM) is getting hammered partly because it’s a REIT, 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)
OKE Dividend Yield: 6.8%
Oneok (OKE) is in the energy sector, so there’s little wonder as to why the dividend yield is within shouting distance of 7%.
As the general partner of natural gas transport and storage firm Oneok Partners LP (OKS), OKE is getting dragged down by the 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 about 29% for the year-to-date.
That said, the dividend appears safe for now. Not long ago, OKE reaffirmed its cash flow available for dividends outlook and free cash flow guidance.
Top S&P 500 Dividend Stocks #2: Frontier Communications (FTR)
FTR Dividend Yield: 7.89%
Regional telecoms have habit of leading the list of the S&P 500’s top-paying dividend stocks, and this month is no exception. Frontier Communications (FTR) traded places with CenturyLink (CTL) in September thanks to some recent relative outperformance.
Be that as it may, FTR is still down more than 20% for the year-to-date. It has been a terrible long-term holding as well.
FTR has made progress in adding broadband customers, but the core business of landline service has zero chance of material growth.
On the plus side, ample free cash flow makes the insanely high FTR dividend one investors can count on.
Top S&P 500 Dividend Stocks #1: CenturyLink (CTL)
CTL Dividend Yield: 8.1%
As noted above, this month’s champion is CenturyLink (CTL). Investors can thank a YTD plunge of 33% in the share price for that.
That’s what happens to regional telcos as customers continue to ditch their landlines. True, CenturyLink is 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 8.1% sounds, CTL has the gushers of free cash flow to back it up.
Be forewarned, however, that CTL has a dismal record as a long-term holding even on a total-return basis.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.