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By Dan Burrows
last updated
Experienced equity income investors know that blindly buying stocks with the highest dividend yields can be a dangerous game.
Indeed, an unusually high dividend yield can actually be a warning sign. That's because stock prices and dividend yields move in opposite directions. It's possible that a too-good-to-be-true dividend yield is simply an effect of a stock having lost a lot of value.
And anytime a company's stock is slumping badly, it's worth wondering if its dividend is sustainable at current levels.
Case in point: look at what happened with Newell Brands (NWL) last year.
Newell, whose portfolio of products ranges from Rubbermaid and Sharpie to Oster and Yankee Candle, was having a tough 2023. Shares lost a third of their value through mid-May, pushing up the yield on NWL's dividend to as much as 9.7%.
That seemed pretty obviously unsustainable, and indeed it was. In the spring, Newell cut its quarterly dividend by almost 70% to 7 cents per share. (The company said the cash formerly earmarked for shareholders will be used to pay down debt, which is probably a good idea.) Nonetheless, the yield on Newell's dividend tumbled to below 3% from knocking on the door of 10%.
Stocks with the highest dividend yields
So, yes, sometimes stocks with the highest dividend yields can be fool's gold.And this could be pertinent to some of the stocks with the highest dividend yields in the S&P 500 today. Be forewarned that in some cases the names below have entered elite-yield territory only because their share prices have come under stress. In turn, that has some analysts concerned about the sustainability of payouts going forward.
With those caveats out of the way, below please find the five S&P 500 stocks with the highest dividend yields.
Market data, analysts' estimates and analysts' recommendations are as of January 4, 2024, courtesy of YCharts and S&P Global Market Intelligence. Stocks are listed by dividend yields, from lowest to highest.
1/5
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Healthpeak Properties
- Market value: $10.8 billion
- Dividend yield: 6.13%
- Analysts' consensus recommendation: Buy
Real estate investment trusts (REITs) are required to pay out most of their profits in the form of dividends, but it's rare for a REIT to actually make the list of S&P 500 stocks with the highest dividend yields.
Healthpeak Properties (PEAK), a healthcare REIT, makes the list this month, but mostly because its stock price continues to be in a funk. PEAK has lost more than a fifth of its value over the past 52 weeks, pushing the yield on its dividend well above its three-year average of 4.72%.
In October 2023, Healthpeak Properties and Physicians Realty Trust (DOC) agreed to merge in an all-stock deal that would create a $21 billion healthcare REIT consisting of clinics, hospitals and surgery centers. The deal is expected to close in the first half of 2024.
PEAK stock is up by more than a quarter since the end of October, and analysts see more relative outperformance ahead. Of the 15 analysts covering PEAK surveyed by S&P Global Market Intelligence, seven call it a Strong Buy, six say Hold and two rate it at Sell. That works out to a consensus recommendation of Buy, with mixed conviction.
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2/5
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Kinder Morgan
- Market value: $39.8 billion
- Dividend yield: 6.26%
- Analysts' consensus recommendation: Buy
Companies that transport and store oil and natural gas are known for their generous dividends, and Kinder Morgan (KMI) is no exception. The largest energy infrastructure firm in the S&P 500 typically boasts a dividend yield well above the average of its peers.
Even better, KMI expects to increase its dividend for a seventh consecutive year in 2024. Management said in early December that it expects to pay an annualized dividend of $1.15 per share in the new year, an increase of 1.8% vs 2023.
Take the dividend hike, add in a stock price that's off about 1% over the past 52 weeks, and Kinder Morgan finds itself on the list of highest-paying dividend stocks in the S&P 500. That said, be aware that KMI is lagging the broader market by a wide margin over concerns about macro risks, its heavy debt load and other issues.
"Kinder Morgan faces pressure from both commodity price risk and shipper counterparty risk," writes Argus Research analyst Bill Selesky, who rates KMI at Hold. "However, our biggest concern is the company's relatively high leverage, with a debt/cap ratio of approximately 50%. We believe that high interest expense in a rising rate environment could limit dividend increases and share repurchases."
Of the 22 analysts issuing opinions on KMI stock surveyed by S&P Global Market Intelligence, four rate it at Strong Buy, five say it's a Buy, 12 have it at Hold and one calls it a Strong Sell. That works out to a consensus recommendation of Buy, but with conviction so low it's just a notch above Hold.
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3/5
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AT&T
- Market value: $122.7 billion
- Dividend yield: 6.44%
- Analysts' consensus recommendation: Buy
AT&T (T) is the first of two telecommunications companies on our list of stocks with the highest dividend yields in the . No surprise there. Thanks to customers sending in their checks every month, telcos are known for their generous and dependable dividends.
In AT&T's case, the company has paid uninterrupted dividends since 1984. Until 2019, it had raised its payout annually for more than three decades, making it a one-time member of the .
Shares are off more than 8% over the past 52 weeks, hurt in part by concerns over the costs associated with cleaning up lead contamination. Although the slumping stock price has pushed up T's dividend yield, it actually remains below its own five-year average.
Shareholders can also take comfort in the fact that AT&T has been chipping away at its heavy debt load and freeing up cash. The company generated free cash flow (or the cash remaining after expenses, capital expenditures and financial commitments are met) of $103.4 billion in 2022. That's much better than the negative free cash flow of $67.7 billion AT&T recorded the previous year. Free cash flow is what ultimately supports dividend payments, so this was a welcome development for shareholders.
Of the 28 analysts covering AT&T tracked by S&P Global Market Intelligence, 10 call it a Strong Buy, two have it at Buy, 13 say it's a Hold, one says Sell and two rate it at Strong Sell. That works out to a consensus recommendation of Buy with modest conviction.
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4/5
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Verizon
- Market value: $165.6 billion
- Dividend yield: 6.79%
- Analysts' consensus recommendation: Buy
Telecommunications stocks such as Verizon Communications (VZ) are known for producing steady and generous dividends. As the only telecom in the Dow Jones Industrial Average, Verizon gets more than its fair share of attention from institutional investors looking for equity income.
True, VZ sports one of the highest dividend yields in the benchmark index partly because shares are off about 2% over the past 52 weeks. As with AT&T, the stock is down partly because of concerns over the costs associated with cleaning up lead contamination. That said, VZ's dividend yield is not wildly out of line with past levels. The stock's three-year average dividend yield stands at 6.9%.
Long-term investors seeking out the best dividend growth stocks will be happy to know that this telco is also a reliable dividend grower. VZ has hiked its payout annually for 19 consecutive years. And the dividend increases should keep coming.
How can we be confident of this? Verizon generated free cash flow of $17.8 billion for the 12 months ended Sept. 30, 2023. And that was after disbursing almost $11 billion in dividends.
As for VZ stock's prospects for beating the market over the next 12 to 18 months, Wall Street's consensus recommendation stands at Buy, albeit with low conviction, per S&P Global Market Intelligence.
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5/5
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Altria Group
- Market value: $73.4 billion
- Dividend yield: 9.47%
- Analysts' consensus recommendation: Hold
Altria Group (MO) always sports a generous dividend yield, but it rarely claims the top spot on the list of stocks with the highest dividend yields in the S&P 500.
The deal with Altria is that there isn't much growth to be found in the U.S. tobacco business. And so the company known for Marlboro cigarettes and Copenhagen dipping tobacco has to keep shareholders happy with generous and reliable dividends.
But dividends are only part of the story when it comes to Altria's status as a defensive equity income stock. Sales of its addictive products tend to hold up well when economic times get tough. MO stock also tends to trade with much lower volatility relative to the broader market.
Those characteristics – as well as a dividend yield of more than 9.4% and 13 consecutive years of dividend increases – make MO a pretty good place to hide in a bad market.
That was certainly the case in 2022, when the S&P 500 generated a total return (price change plus dividends) of -18%. It was one of the worst years ever for stocks, and yet MO delivered a total return of +4.4%.
By the same token, defensive stocks like Altria tend to underperform in rising markets. And that was certainly the case in 2023. While the S&P 500's total return came to 26% last year, MO's total return was -3.6%.
Analysts expect Altria only to match the performance of the broader market over the next 12 to 18 months, assigning it a consensus recommendation of Hold, per S&P Global Market Intelligence.
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Dan Burrows
Senior Investing Writer, Kiplinger.com
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily– Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
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