We’re taking a different tack with the top S&P 500 dividend stocks for the month this time around. Very few people found use in a look at simply the highest yielders, so to better help our readers out, we’re only looking at the best dividend stocks in the index instead.
The trouble with the old way of doing things is that a very high dividend yield often is a sign of a troubled stock. After all, yields rise as share prices fall … and share prices usually decline for a reason.
The interesting thing about looking at the highest yielders was discovering just how whopping yields on dividend stocks can get. Month after month, it’s possible to find regional telecommunications companies or energy sector names yielding in the high-single digits or even double digits. But so what? The downside for the telcos is that share price performance often wiped out any return from the payout. In the case of energy names, share prices are down while risks to their dividends are up.
This month, we decided to look at the best S&P 500 dividend stocks based not just on yield, but on the strengths of their fundamentals and balance sheets. Yes, the yields are a little less spectacular on this list, but the potential for better returns is arguable much higher.
With that, here are the top 10 S&P 500 dividend stocks to buy now. (Yields as of April 25.)
Top S&P 500 Dividend Stocks to Buy #10: Merck & Co., Inc. (MRK)
MRK Dividend Yield: 3.3%
Big pharmaceutical companies use mergers and acquisitions to fill their pipelines and cut costs.
That strategy appears to be working for Merck & Co., Inc. (MRK).
Like Zetia, Merck’s $2.6 billion cholesterol drug, blockbuster drugs go off-patent and need to be replaced by other best-sellers. That’s why long-term investors can be comfortable with MRK. Merck has five drugs that currently are being reviewed by regulatory agencies, as well as 25 late-stage and 11 mid-stage programs.
Shares are up 6% so far this year, which outperforms the S&P 500 by 4 percentage points. Throw in the dividend, and this blue-chip looks good for better-than-average returns.
Top S&P 500 Dividend Stocks to Buy #9: Procter & Gamble Co (PG)
PG Dividend Yield: 3.3%
Procter & Gamble Co (PG) is a consumer products company that has paid rising dividends since the 19th century. That kind of track record means you can bank on those payouts — they’ll keep flowing no matter what.
Furthermore, PG is returning cash to shareholders through a large share repurchase program. All told, $18 billion per year in dividends and buybacks isn’t just a way to give cash back to stockholders, it also helps provide support for shares. Meanwhile, P&G is also cutting $10 billion in costs through 2016.
Shares are up a slightly market-beating 2.2% for the year-to-date now that PG stock finally has pulled out of its downtrend.
Top S&P 500 Dividend Stocks to Buy #8: Boeing Co (BA)
BA Dividend Yield: 3.4%
The market is rightly worried about some of Boeing Co’s (BA) headwinds. Consider this:
- Airbus (EADSY) has beaten Boeing for two years in a row when it comes to backlog.
- Airbus sold more planes last year, with orders of 1,080 to 878 for Boeing.
- Airbus is getting a lift on the strong dollar, too, while Boeing is being crushed under it,
- Airbus has also seen strong demand for its A321neo jetliner.
Shares are down for the year-to-date, and it wouldn’t be surprising to see more price pressure ahead.
So why any bullishness on Boeing? BA is killing Airbus in orders this year and taking market share.
The valuation — BA trades at just 14 times earnings — along with a healthy 10% projected growth rate and generous dividend suggest BA will take off for patient investors.
Top S&P 500 Dividend Stocks to Buy: Pfizer Inc. (PFE)
PFE Dividend Yield: 3.6%
Like other big pharmas, Pfizer Inc. (PFE) relies on deals to grow. That’s why the failure of its $160 billion bid for Allergan plc Ordinary Shares (AGN) was a big blow to PFE.
Yet the market quickly shrugged that off to send Pfizer to new year-to-date highs.
Shares are positive in 2016, and just edging out the S&P 500 at 3% gains. The thing is we’re talking about dividend stocks here, so longer holding periods are implied. On that basis, you’ve got another blue-chip champion.
Pfizer stock has almost doubled over the last five years including dividends. The broader market has a total return of just 73% over the same span.
Top S&P 500 Dividend Stocks to Buy #6: Cisco Systems, Inc. (CSCO)
CSCO Dividend Yield: 3.7%
Cisco Systems, Inc. (CSCO) has an attractive long-term strategy, which has included the acquisition of Jasper to build out its focus on the up-and-coming Internet of Things.
But the deal also includes growth on the enterprise side, serving everything from predictive maintenance for industrial manufacturing to usage-based car insurance. It also has made a successful expansion to software and cloud service businesses for enterprise and carrier networking customers.
The market appears to be buying CSCO’s forward-looking goals; it’s up a solid 3.9% YTD. The new opportunity could make analysts’ predicted growth rate too conservative, and that would lead to multiple expansion.
Top S&P 500 Dividend Stocks to Buy #5: AbbVie Inc. (ABBV)
ABBV Dividend Yield: 3.8%
Drug company AbbVie Inc. (ABBV) isn’t blowing anyone away with its 2016 performance — it tops the S&P 500 by less than a point — but it’s dangerous to be shortsighted with this name.
Immunology treatments are a big growth area, and AbbVie has Humira, the world’s top-selling immunology drug. If the company can continue to build on that success, it should remain a market-beater easily.
The dividend yield of 3.8% complements the long-term growth rate of more than 15% quite nicely.
Taken together, you’ve got a total return winner.
Top S&P 500 Dividend Stocks to Buy #4: Ford Motor Company (F)
F Dividend Yield: 4.4%
We’ve argued many times that Ford Motor Company (F) is a bargain-busting buy without even touching on the fat dividend. And that alone makes a big part of the bull case.
Ford has monthly sales growth the likes of which it hasn’t seen in 10 years. Importantly, sales of higher-margin sport utility vehicles and trucks get credit for the performance. Heck, crossovers and SUVs enjoyed a 13% increase in year-over-year March sales.
And lest anyone worry about a slowdown in China — the world’s largest car market — F is chugging along there too.
Top S&P 500 Dividend Stocks to Buy #3: Verizon Communications Inc. (VZ)
VZ Dividend Yield: 4.5%
No discussion of top dividend stocks can fail to include a mega-telecommunications stock like Verizon Communications Inc. (VZ). There just aren’t that many big, quality stocks with yields above 4%.
Telecoms aren’t known for growth. Wireless is saturated, broadband isn’t what it used to be and landlines’ days have come and gone. VZ is grappling these challenges with a plan to leverage its vast network to deliver mobile and video advertising.
To that end, the company bought AOL and reports say it’s targeting Yahoo Inc. (YHOO) pretty seriously.
If VZ can carve out a new role in mobile, analysts might have to boost their growth forecasts.
Top S&P 500 Dividend Stocks to Buy #2: General Motors Company (GM)
GM Dividend Yield: 4.8%
Like Ford, General Motors Company (GM) is overly discounted for the risks it carries — especially when you build in the cushion of the generous yield.
In the quarter just passed, GM’s profit more than doubled on record earnings in North America and continued strength in China. Europe, long a sinkhole for General Motors, almost broke even. Even South America, which is in a serious funk, posted a narrower loss.
Against that backdrop, GM stock trades at less than six times forward earnings. That’s almost 25% below its own five-year average and is roughly two-thirds cheaper than the S&P 500, according to data from Thomson Reuters.
Top S&P 500 Dividend Stocks to Buy #1: AT&T Inc. (T)
T Dividend Yield: 5.%
If you’re going to put VZ on this type of list, then you’ve got to put AT&T Inc. (T) here too. The blue-chip telco is routinely one of the highest dividend yielders in the S&P 500. It’s also a cash machine.
Like its No. 1 competitors, T dealing with the telco growth conundrum by branching out. That’s why it acquired DirecTV. We’ll see how that goes.
Then there’s the case that T is a great stock for playing defense. A five-year beta of 0.27, according to S&P Capital IQ, means it’s far less volatile than the S&P 500.
And while telecoms typically don’t put up growth, investors should salivate over the far better total returns over the long haul. AT&T has returned 146% over the past 10 years, versus just 95% for the S&P 500.
That’s the power of a large, bulletproof yield.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.