It's possible to score 4.68% yields on Treasuries — and take little risk. So to even consider dividend-paying S&P 500 stocks the yield had better be impressive.
And just 11 S&P 500 stocks, including utility PG&E, Pioneer Natural Resource and V.F., pay CD-busting yields of 7% or higher, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's likely the smallest dividend yield investors might accept in exchange for taking on stock risk.
That's also the challenge for investors looking for income. Compelling dividend yields are harder to find in the S&P 500. Additionally, 4.7% risk-free on 10-year Treasuries (or even 5% on CDs) is tough to beat. Finding dividend stocks worth your time isn't easy.
"Our message to investors is to not succumb to the stock market's popularity contest and feel the need to invest in certain stocks just because everyone else is. It's important to think about fundamentals, cash flows, and dividends," said David Bahnsen, chief investment officer, The Bahnsen Group.
Sinking Dividend Yields In S&P 500
Why are solid dividend yields so rare in the S&P 500? Interestingly, the fact the S&P 500 is doing so well this year is deflating dividend yields. It's a mathematical reality.
The S&P 500 itself now only yields a paltry 1.4%. That's down from its 1.6% yield coming into the year. The index' 12% rise this year pulls down the yield. That's because the way yields are calculated means yield falls when prices rise. That also means yields rise when stock prices fall. And as you'd expect, all 11 of the S&P 500 stocks yielding 7% or more are indeed lagging the S&P 500. All are actually down this year — some by large amounts.
Additionally, S&P 500 companies cut their actual dividend payments by 2.3% in the second quarter from the first, says Howard Silverblatt of S&P Dow Jones Indices. "Uncertainty over a potential recession, earnings, and both government and corporate debt cost increased to limit the Q2 2023 increases," he said. Third quarter updates will be known following earnings season.
What's more, many sectors that tend to drive dividend growth are cooling off. Financials are reluctant to boost dividends in light of more regulation. Many utility stocks are also struggling.
So if you're looking for fat dividends, you're going to have to look harder.
A 34% S&P 500 Dividend Yield? Yes, But With Huge Risks
Dividend chasers' biggest success story this year had been PG&E. The Oakland-based electric and natural gas utility operator yields a remarkable 34.1%. But it's not to be counted on.
The struggling company officially suspended its common stock dividend in the fourth quarter of 2017. But "on February 16, 2023, the Board of Directors of the Utility declared a common stock dividend of $425 million, which was paid to PG&E Corporation on February 28, 2023. On May 18, 2023, the Board of Directors of the Utility declared a common stock dividend of $450 million, which was paid to PG&E Corporation on June 21, 2023," says the company's 10-Q for the second quarter. The company is clear, though, on that it's not necessarily reinstating the regular dividend on common stock.
Amazingly, too, this S&P 500 stock's price had been up 7.2% this year on top of that gain as of July. But in September, the stock cratered. It's now down 6.4% on the year. PG&E's stock price certainly lags the S&P 500, but with a massive yield like that investors are getting some compensation. Investors can take at least some comfort, too, from the company's stable earnings outlook. Analysts think PG&E will make $1.21 a share on an adjusted basis this year, up 10% from 2022. Additionally, analysts think the company's profit will rise annually until at least 2027.
Analysts aren't calling for a crash in the stock price, either. The stock is expected to trade for 19.12 a share in 12 months. That's roughly 8% higher than it is now.
Other High Dividend S&P 500 Plays
Pioneer Natural continues to be the highest yielding S&P 500 stock in the energy sector. The Irving, Texas-based oil exploration firm yields 12.0%. That yield, too, hasn't come with much of a stock-price drop. Shares of the company are only down 1.7% this year to 224.46 apiece. And again, analysts think the stock can hang on. They're calling for the stock to be worth 260.12 a share in 12 months. Profit is expected to fall 33% this year, but grow 15% in 2024.
Apparel maker V.F. is another high-yielding stock that can thank its plunging stock price. The company yields an impressive 10.2%. But that's mainly due to its shares falling nearly 40% this year to 16.59. Analysts think the stock is still 30% undervalued compared to where it should be in 12 months' time. And yet, profit is expected to fall nearly 4% in fiscal 2024.
Many investors might decide to skip all the dividend drama and stick with the 4.68% 10-year Treasury. But if you really like dividend stocks, there are options in the S&P 500.
Highest Yields In The S&P 500
| Company | Ticker | YTD % ch. | Yield | Sector |
|---|---|---|---|---|
| PG&E | -6.4% | 34.1% | Utilities | |
| Pioneer Natural Resources | -1.7% | 12.0 | Energy | |
| VF | -39.9% | 10.2 | Consumer Discretionary | |
| Altria Group | -9.0% | 9.3 | Consumer Staples | |
| Walgreen Boots Alliance | -40.0% | 8.6 | Financials | |
| Verizon Communications | -19.4% | 8.2 | Communication Services | |
| KeyCorp | -40.0% | 7.6 | Financials | |
| AT&T | -20.3% | 7.4 | Communication Services | |
| Devon Energy | -25.8% | 7.3 | Energy | |
| Truist Financial | -35.8% | 7.3 | Financials | |
| Simon Property | -10.9 | 7.0 | Financials |
