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 June 5, 2024, courtesy of YCharts and S&P Global Market Intelligence. Stocks are listed by dividend yields, from lowest to highest.
- Market value: $13.8 billion
- Dividend yield: 6.08%
- 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 (DOC), a healthcare REIT, makes the list this month, but mostly because its stock price continues to be in a funk. DOC has lost more than 5% of its value on a price basis over the past 52 weeks, pushing the yield on its dividend well above its five-year average of 4.9%.
In March, Healthpeak Properties closed its merger with Physicians Realty Trust. The $21 billion all-stock deal created a healthcare REIT consisting of clinics, hospitals and surgery centers.
DOC stock was up by more than 15% for the three months ended early June, vs a 4% gain for the broader market, and analysts see more relative outperformance ahead. Of the 19 analysts issuing opinions on DOC surveyed by S&P Global Market Intelligence, nine call it a Strong Buy, four say Buy and six have it at Hold. That works out to a consensus recommendation of Buy with solid conviction.
- Market value: $13.8 billion
- Dividend yield: 6.21%
- Analysts' consensus recommendation: Hold
Don't let the elevated dividend yield on Walgreens Boots Alliance (WBA) stock get you too excited. The pharmacy chain's shares have been under duress for some time, analysts aren't collectively bullish on the name, and earlier this year WBA was booted from both the Dividend Aristocrats and the Dow Jones Industrial Average.
Walgreens Boots Alliance used to be one of the best dividend stocks to buy for dependable dividend growth. The retailer was removed from the Dividend Aristocrats in January after it slashed its disbursement by almost half in late 2023. WBA had raised its dividend annually without fail for almost a half-century before the cut.
Then the hits kept coming. In February, Amazon.com (AMZN) replaced Walgreens in the venerable Dow Industrials. Comparitively little money tracks the Dow, so the blow was more psychological than anything.
That said, it's understandable if the market remains hinky about WBA stock's prospects at this juncture. Of the 19 analysts covering Walgreens stock surveyed by S&P Global Market Intelligence, one rates it at Strong Buy, two call it a Buy, 12 have it at Hold, two rate it at Sell and two say Strong Sell. That works out to a consensus recommendation of Hold with a negative bias.
- Market value: $174.2 billion
- Dividend yield: 6.40%
- Analysts' consensus recommendation: Buy
Telecommunications stocks such as Verizon Communications (VZ) are known for producing steady and generous dividends. As the only telecom among Dow Jones stocks, 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 still off about 27% over the past three years. The stock has labored more recently in part 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 6.09%.
Long-term investors seeking out the best dividend growth stocks will be happy to know that this telco is also a reliable dividend hiker. Verizon has increased its dividend annually for 17 consecutive years.
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 fairly low conviction, per S&P Global Market Intelligence.
- Market value: $9.5 billion
- Dividend yield: 6.54%
- Analysts' consensus recommendation: Buy
Boston Properties (BXP) is another REIT, in this case one that specializes in workplaces concentrated in Boston, Los Angeles, New York, San Francisco, Seattle and Washington, D.C.
BXP's regional concentration and the soft market for commercial real estate has been tough on its stock. Shares in Boston Properties lost about 14% of their value on a price basis for the year-to-date through early June. The S&P 500, by comparison, gained about 12% over the same span.
That underperformance helped lift the forward dividend yield on BXP stock to above 6.5%, or well above its three-year average yield of 5.15%, according to data from YCharts.
Wall Street leans toward bullishness on the name, but not convincingly. Of the 22 analysts covering BXP stock surveyed by S&P Global Market Intelligence, five call it a Strong Buy, three say Buy, 13 have it at Hold and one calls it a Sell. That works out to a consensus Buy recommendation with mixed conviction at best.
- Market value: $80.1 billion
- Dividend yield: 8.37%
- 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 8%, 13 consecutive years of dividend increases and 58 dividend hikes in the past 54 years – 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%.
A proposed ban on menthol cigarettes has been a major overhang on MO stock. There are other issues as well. As a result, the Street expects 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.
