Looking for some income in your portfolio? Even growth-oriented investors can appreciate dividend stocks and the payouts they provide, even if that cash is ultimately earmarked for the purchase of growth stocks. And as for income lovers: With bonds still paying next to nothing despite the Federal Reserve’s plans to start ratcheting up interest rates, dividend stocks are the only viable way to drive cash flow at a level that at least keeps pace with inflation.
It’s not a look that should be taken lazily, mind you. Sometimes a dividend yield is high simply because a stock has fallen in anticipation that its dividend will soon be cut. On the other hand, sometimes a yield is strong because the market proverbially threw the baby out with the bathwater. Even the names that have fallen due to fears of a reduced dividend, however, can sometimes make for worthy speculations.
The situation doesn’t become clear until a particular company is scrutinized.
Whatever the case, to help investors get their search for income started, here’s a closer look at the 25 large caps with the biggest payouts. The list was assembled without bias or assumption; it’s just a list of the market’s major dividend stocks, starting with the smallest payout and working its way to the biggest.
#25: Duke Energy (DUK), 4.59% Dividend Yield: Duke Energy may be the first utility name on this list of dividend stocks for income investors to consider owning in 2016, but it won’t be the last. Utilities are among the most stable and stereotypical of dividend stocks, serving as a toll booth that all consumers are required to cross once per month … forever. That’s how Duke can afford its current 4.59% dividend yield. That said, a potentially brutal winter could spur an especially solid first quarter for Duke Energy and its peers going forward.
#24: Philip Morris International (PM), 4.61% Dividend Yield: The public certainly loves to publicly hate Big Tobacco. Yet, investors certainly love to own these names too. Reynolds American, Inc. (RAI) shares were up 45% in 2015, while Altria Group Inc (MO) shares gained 20%. The company that income seekers want to take a puff on within the tobacco arena, however, is Philip Morris International. PM currently sports a yield of 4.61%, and despite anti-smoking efforts that seem to be worldwide, that dividend is rather well-protected, and the company has made a concerted effort to remain shareholder-friendly.
#23: Southern Co (SO), 4.61% Dividend Yield: As promised, Duke Energy isn’t the only utility name to earn a spot on this list of compelling dividend stocks. Southern Company has continued to ride a rising tide of earnings growth, and has passed a big chunk of that income along to investors. That’s not going to change anytime soon. Indeed, Southern Co is wading a little further into wind and solar now, diversifying its production capacity, and therefore giving it some fiscal flexibility (even though wind and solar are not consistently profitable ventures).
#22: International Paper (IP), 4.62% Dividend Yield: Once again, paper manufacturer International Paper is underappreciated and underestimated. Granted, it’s not a sexy business, and the dynamics of the paper market can ebb and flow enormously in just short while. It’s always an industry that lands on its feet, though, as paper usage is almost like utility usage … we can’t seem to get around it.
#21: Chevron Corporation (CVX), 4.74% Dividend Yield: In light of what’s going on with the oil market, it’s tough to own a name like Chevron Corporation, even if the current yield is well above 4%. CVX seems to have a hand in every aspect of the energy market, none of which have been compelling for months. Worse still, with crude stockpiles in the U.S. rising back to unwieldy levels while OPEC remains adamant about sustaining its output, there’s no end in sight to the oil glut that’s making life miserable for these companies. The herd is starting to thin out, however, and it may well be a sign that things will finally start to improve for the energy market in 2016. When that happens, the biggest and the strongest survivors — like Chevron — will be well-positioned to ride the recovery wave. It just takes a little faith that nothing lasts forever.
#20: Verizon (VZ), 4.83% Dividend Yield: Verizon usually is classified as a consumer service stock, but truth be told, it’s as much of a utility stock and a commodity as it is a service play. It’s that hybrid nature, however, that makes a telecom name like Verizon and its massive dividend so attractive. VZ may not be able to take a lot of new market share, but it’s also not giving any real share up to other players in this space. And to its credit, Verizon is also trying new things like a streaming television service as a way to boost its growth opportunities.
#19: Welltower (HCN), 4.89% Dividend Yield: You may know it better as Health Care REIT; the name was changed in September. The name is irrelevant, however. What matters is that this assisted-living facilities and long-term and post-acute-care facilities REIT owns 1,400 different properties, and uses them to support a dividend yield nearing 5%.
#18: Entergy (ETR), 4.94% Dividend Yield: Another utility stock? Yep. Just think of it as a testament to the importance and reliability of the sector to income investors. The dividend yield for ETR is a healthy 4.94%, and like most other utility names, Entergy has a decent history of rising payouts. One key distinction with Entergy — it’s also an electricity wholesale producer.
#17: Host Hotels and Resorts Inc. (HST), 5.07% Dividend Yield: Like Welltower, Host Hotels and Resorts is a REIT. Unlike Welltower, though (and as its name clearly suggests), Host Hotels and Resorts operates hotels, and directs the bulk of that income back to investors to support its current dividend yield of 5.07%. REITs must pay out at least 90% of their income to shareholders in the form of dividend to legally maintain its tax-advantaged status, and for that reason, it and Welltower aren’t the only REITs to appear in this list of dividend stocks.
#16: Ventas (VTR), 5.23% Dividend Yield: Ventas is yet another REIT with a strong payout. VTR is more like Welltower than Host Hotels and Resorts in that it operates healthcare facilities. Specifically, its portfolio consists of a combination of senior housing communities, medical office buildings, nursing facilities, hospitals and more … a total of 1,300 properties in all (and it’s still not the last REIT on this list).
#15: National-Oilwell Varco (NOV), 5.39% Dividend Yield: Like most other energy-related stocks, National-Oilwell Varco was a miserable performer in 2015, losing nearly half of its value. Unlike many of its sector peers and rivals, though, National-Oilwell Varco has remained profitable, and has pretty fiercely defended what has become a dividend yield of 5.39% thanks to the big pullback. NOV has remained profitable mostly because it leases equipment to explorers and drillers, and hasn’t been affected quite as harshly as other energy companies have.
#14: AT&T (T), 5.52% Dividend Yield: Surely you didn’t think Verizon would appear on a list of dividend stocks that didn’t include AT&T, did you? The only difference between the two is, Verizon is paying 4.83%, while AT&T presently boasts a dividend yield of 5.52%. Don’t jump to the conclusion that T is a better way to play than VZ, however. Verizon arguably has more room for dividend growth, as AT&T already spends most of its cash flow on shareholders and has added new debt in recent years. And while its pairing with DirecTV has brought a bevy of new potential customers into the fold, it wasn’t a cheap acquisition given its risk. How many more of those can AT&T afford if that’s the only growth plan it can come up with?
#13: Spectra Energy Partners (SEP), 5.68% Distribution Yield: Incredibly enough, Spectra Energy Partners is the first MLP to show up on this list of strong dividend stocks to mull for 2016. It won’t be the last, however. MLPs — short for master limited partnerships — are tax-advantaged, publicly traded entities that facilitate the pass-through of income to investors the way conventional partnerships do. While theoretically any revenue-bearing operation could become an MLP, it’s a legal framework that lends itself to the nature of oil and gas pipelines and storage systems. It has been a troubled segment of the energy market of late, but the pullback from SEP has pumped up its yield to a healthy 5.68%. The question is: Can that payout continue?
#12: Las Vegas Sands (LVS), 5.89% Dividend Yield: That’s not a misprint — casino owner and operator Las Vegas Sands is not only boasting a dividend yield of 5.89%, it has remained profitable against an industry headwind in Macau. Better yet, the company already announced an increase of more than 10% in 2016’s dividend payout, so the trailing yield figure understates what shareholders can expect to pocket in 2016.
#11: HCP, Inc. (HCP), 5.91% Dividend Yield: The last REIT to appear on this list of dividend stocks worthy of consideration is the uncreatively named HCP. Like its aforementioned healthcare REIT peers, HCP deals in businesses such as senior living developments and medical offices, which are extremely stable sources of income that offer a great deal of growth potential as more baby boomers reach retirement age.
#10: Enterprise Products Partners, L.P. (EPD), 6.17% Distribution Yield: Enterprise Products Partners is another MLP to — thanks to persistent weakness from the stock all year long — earn a spot on a list of dividend stocks to consider. EPD is the natural gas liquids business side of Enterprise Products Company, and operates more than 50,000 miles of pipelines for natural gas, NGL, crude oil and other products. Like Spectra Energy Partners, Enterprise Products Partners has technically remained profitable over the past few quarters, even while the industry has struggled. Between that and the fact that EPD was one of the first middlemen to secure an overseas supply deal when the U.S. recently lifted the ban on the export of crude oil, its yield of 6.17% is surprisingly well-protected.
#9: Spectra Energy Corp. (SE), 6.24% Dividend Yield: If the name rings a bell, it may be because its business counterpart, Spectra Energy Partners, was No. 13 on our list of strong dividend stocks. More important, Spectra Energy Corp. sports a yield of 6.24%. Just bear in mind the fate of one is largely tied to the fate of the other name as part of the MLP structure.
#8: ConocoPhillips (COP), 6.27% Dividend Yield: Like Chevron Corporation, ConocoPhillips — the country’s third-largest integrated energy giant — is diversified across most facets of crude oil and natural gas. And unfortunately, COP has dropped as the fortunes of both commodities have dropped. On the other hand, for the same reason an investor might be willing to roll the dice on COP (anticipating at least some sort of stability for oil prices in 2016), COP may just be a worthy bet. The dividend payout of 6.27% in the meantime isn’t too shabby either.
#7: Blackstone (BX), 6.45% Distribution Yield: Blackstone is one of the world’s premier global investment firms, investing in everything from private and public businesses to real estate, and offering products such as hedge and closed-end funds. It boasts $92 billion in assets under management. Just think of it as a conservative, actively managed ETF that dishes out income at a rate of 6.45%.
#6: CenturyLink (CTL), 8.36% Dividend Yield: Despite being the third-biggest telecom name in the country in terms of total lines served, most investors have never heard of CenturyLink. That’s too bad, because its dividend yield of 8.36% is quite attractive. Granted, the quarterly payout took a hit in 2013, and the company has yet to boost it in the meantime. The top and bottom lines are starting to edge upward again, however, so it’s possible a shareholder-friendly CenturyLink could start to increase its dividend in the foreseeable future.
#5: Energy Transfer Equity LP (ETE), 8.46% Distribution Yield: Like the Spectra duo, Energy Transfer Equity LP is another MLP that has struggled of late thanks to slumping oil and gas prices. As has been the case with so many other pipeline plays, though, the 59% setback that ETE suffered in the second half of 2015 may have been overdone, meaning the market might not let the current yield of 8.46% linger much longer. (Note that Energy Transfer Equity is slated to acquire another pipeline name appearing later on this list.)
#4: KKR & Co. L.P. (KKR), 8.86% Distribution Yield: Like Blackstone, KKR is a major private equity firm that has made its coin on leveraged buyouts, boasting some $400 billion in PE deals over its lifetime. Its portfolio includes companies such as Alliant Insurance Services, GoDaddy Inc (GDDY) and Toys “R” Us., but it also manages real estate holdings and manages hedge funds as well. More important to income investors, it’s presently paying out 8.86% of its value as dividends.
#3: Williams Companies (WMB), 10.32% Dividend Yield: Yes, another pipeline play, and yes, another MLP … sort of. Williams Companies is majority owner of Williams Partners LP (WPZ), though WMB isn’t technically an MLP in itself. The structure is irrelevant, though. What matters is that it offers a dividend yield of 10.32% … at least for the time being. Energy Transfer Equity LP will complete a merger with Williams Companies sometime in 2016, which will have an impact on …
#2: Williams Partners LP (WPZ), 12.54% Distribution Yield: Williams Partners LP is 60% owned by the aforementioned Williams Companies, so it’s no surprise the two entities are found side-by-side on this list of dividend stocks. They aren’t perfect twins, however, and the other 40% of WPZ shares can and do move independently. That’s how Williams Partners sports a notably better yield of 12.54%.
#1: Energy Transfer Partners LP (ETP), 12.63% Distribution Yield: Finally, pipeline MLP Energy Transfer Partners LP offers a payout of 12.63% of the stock’s price. Yes, this is the companion stock to (and is owned by, technically) Energy Transfer Equity LP, which was found in the No. 5 slot of our list of fat dividend stocks. It’s also one of the most polarizing names among income investors because the outcome of the union of Energy Transfer Equity and Williams Companies isn’t clear, but will certainly be felt by ETP owners one way or another. Whatever the case, if you can stomach the uncertainty and if you believe that consolidation can sustain strong payouts in the struggling energy industry, ETP may well be worth a look.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.