Top 10 S&P 500 Dividend Stocks for January


The market is having an historically terrible start to the year, and that fact has yields on dividend stocks spiking. At this time last year, the dividend yield on the S&P 500 was 1.97%.

best dividend stocks bank stocksNow it’s up to 2.36%; that’s a big move.

Unfortunately, yields aren’t rising dramatically because companies are returning more cash to shareholders. Rather, it’s because dividend stocks are selling off like everything else.

Indeed, dividend stocks are taking a disproportionate beating because there are so many in the energy sector. With oil prices doing what they’re doing, prices for energy names are falling and their yields are going up.

That said, market performance has lifted dividend yields for new funds, and the incipient rate hike cycle promises more gains eventually. If you can find bargains amid dividend stocks, yields on an original cost basis could turn into whoppers in a few years.

Unfortunately, many of the market’s highest yielding dividend stocks don’t look like bargains at all. Equities are in a downdraft, and oil prices are crushing more than one sector. Against that backdrop, even the highest yields are likely to be more than offset by price losses.

To get a sense of what some of these dividend stocks look like, we screened the S&P 500 for the names with the highest yields. From more than 6% to nearly 13%, there are some tempting yields out there. Too bad they’re probably not worth it. (Note: Dividend yields are as of Jan. 26.)

Top S&P 500 Dividend Stocks #10: Ensco Plc (ESV)

Ensco185ESV Dividend Yield: 6.51%

Ensco (ESV), a U.K.-based oil and gas exploration company, returns to the list of S&P 500 dividend stocks with the highest yields, but only because shares have crashed over the past few weeks.

Despite its prominence in the industry, ESV doesn’t have a chance as the rout in oil prices continues unabated. The stock is off nearly 70% over the last 52 weeks and 40% for the year-to-date.

With energy prices under wraps, it’s hard to see ESV generating any price upside. Even with the healthy dividend, this name looks primed for more negative total returns.

Top S&P 500 Dividend Stocks #9: Navient Corp (NAVI)

navient-navi-stock-185NAVI Dividend Yield: 6.86%

Last year’s selloff in Navient Corp (NAVI) accelerated in 2016, lifting the dividend yield to dubious levels.

NAVI, which is an educational-loan manager, is getting hammered because of new constraints on its own funding level. Navient’s credit facility through Federal Home Loan Bank of Des Moines would be reduced from a maximum borrowing limit of $10.7 billion to $3.9 billion. That’s a big sting.

Shares have lost more than half their value over the last 52 weeks. In January alone, NAVI is off about 20%. Sure, maybe NAVI is a bargain by now, and the stock is trading higher ahead of earnings. But the stock still doesn’t look like a legitimate bargain, and further weakness in shares could easily continue to offset any gain from the dividend.

Top S&P 500 Dividend Stocks #8: Iron Mountain Inc (IRM)

iron mountain irm 185IRM Dividend Yield: 7.53%

Document management company Iron Mountain Inc (IRM) is a frequent member of this list because of its troubled prospects.

No, it’s not easy to be a real estate investment trust (REIT) in a rate-hike cycle, but IRM’s problems go beyond that. Shares went into free fall at the start or summer when an analyst downgraded it to “Underperform” (sell) because of a “chronic cash shortfall.”

Cash problems should set off alarms when it comes to the sustainability of any dividend. If your strategy is to wait out price depreciation in a stock, it is absolutely imperative that the dividend remains safe.

Top S&P 500 Dividend Stocks #7: Murphy Oil Corporation (MUR)

Murphy Oil NYSE:MURMUR Dividend Yield: 7.96%

Murphy Oil Corporation (MUR) is another energy stock paying huge dividends because shares are getting shellacked.

MUR is an exploration and production company, and there’s not much demand for it to find more oil and drill more wells. At some point, oil will bottom out and stocks like MUR will have big rebounds. It doesn’t look like we’re anywhere near that yet.

MUR is down more than 60% over the last year and — like most stocks — started 2016 on the skids as well. If you buy this for the dividend, you’re not going to see positive total returns for … well, who knows when.

Top S&P 500 Dividend Stocks #6: ConocoPhillips (COP)

ConocoPhillipsLogoCOP Dividend Yield: 8.35%

It should come as no surprise that havoc in the oil market is punishing ConocoPhillips (COP) stock to the point that the yield has reached 8%.

With Goldman Sachs predicting $20 oil next year, the COP yield could easily continue to rise because the stock keeps dropping. That’s not a formula for dividend investing success.

On the plus side, the dividend looks safe. One big danger of energy sector dividends is that companies could cut their payouts; we’ve already seen this happen with a handful of names. Happily, that’s a remote risk for COP, which has never reduced its dividend.

Top S&P 500 Dividend Stocks #5: CenturyLink Inc (CTL)

centurylink185CTL Dividend Yield: 8.8%

Hey, it’s our old friend CenturyLink Inc (CTL), the regional telecommunications that always sports an eye-popping yield. If only share-price performance could also deliver.

CTL is off 37% over the last 52 weeks, wiping out any benefit from the dividend and then some. True, CTL is investing heavily in building out its broadband service, but a dwindling legacy business and higher costs rightfully scare the market.

It’s also important to keep in mind that CTL hasn’t raised its dividend for 12 consecutive quarters, and it even reduced its payout back in 2013.

Top S&P 500 Dividend Stocks #4: Seagate Technology PLC (STX)

Seagate STXSTX Dividend Yield: 9.04%

Now this is getting ridiculous. Hard drive maker Seagate Technology PLC (STX) now yields more than 9%. A month ago it was closer to 7%. This is clearly a stock going in the wrong direction.

Sentiment on STX stock has turned sour for a number of reasons: Margins are under pressure, there are indications that it’s losing market share in enterprise, and rivals Western Digital (WDC) and SanDisk (SNDK) agreed to a merger.

It also doesn’t help that the PC business is gradually receding. With shares still cratering, this dividend yield doesn’t look worth it.

Top S&P 500 Dividend Stocks #3: Frontier Communications Corp (FTR)

frontier-communications-ftr-stock-185FTR Dividend Yield: 9.58%

Frontier Communications Corp (FTR) is another regional telco with an absurdly high yield, but to the company’s credit, it has always been good for it.

FTR has a reliable dividend with a 10-year-plus history of uninterrupted payouts. Ample cash flow and a decent balance sheet should keep that streak alive, but given the record of the share price, it still might not be worth it.

FTR stock has lost about 35% over the last 52 weeks and has been poor long-term holdings, losing 30% of its value over the last five years — even with those outrageous dividends. It’s hard to get positive total return out a regional telecom.

Top S&P 500 Dividend Stocks #2: Oneok, Inc. (OKE)

oneok-inc-oke-185OKE Dividend Yield: 10.11%

As the general partner of natural gas transport and storage company Oneok Partners LP (OKS), Oneok, Inc. (OKE) is just another company getting dragged down by the slump in crude oil prices.

The thinking heading into the downturn was that pipeline companies should be in better shape than other energy players. After all, they just collect a toll on the movement of product. It hasn’t worked out that way, though; OKE is off about 45% over the last year.

Despite its travails, the OKE dividend appears safe for now. Not long ago, OKE reaffirmed its outlook for cash flow available for dividends and free cash flow.

Top S&P 500 Dividend Stocks #1: Williams Companies Inc (WMB)

Williams Companies logoWMB Dividend Yield: 11.25%

Williams Companies Inc (WMB) comes with an asterisk. The natural gas pipeline operator agreed to sell itself to Energy Transfer Equity (ETE) three months ago.

There’s also the little problem that energy infrastructure industry is getting hammered by oil prices like every other name in the sector.

One thing to look forward to: In addition to a special dividend to be paid to WMB shareholders before the deal closes, investors should get a generous stream of distributions after that. ETE doesn’t make this list because it’s not in the S&P 500, but it has a yield not too far off 12%.

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

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