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 a side effect of a stock having lost a lot of value.
And anytime a stock is slumping badly, it’s worth wondering if the underlying company’s current dividend is sustainable.
Case in point: look at what just happened with VF Corp. (VFC (opens in new tab)).
VFC is an apparel and footwear company known for brands such as Vans, The North Face, Timberland and Supreme. It’s also a member of the S&P 500 Dividend Aristocrats – an index of S&P 500 companies that have raised their dividends for at least 25 consecutive years. This group is widely considered Wall Street’s best dividend stocks.
VF Corp. has hiked its dividend every year for 50 years. But that streak – and the company’s membership in the Dividend Aristocrats – is now at risk. On Feb. 7, VFC cut its quarterly dividend by 41% to 30 cents a share from 51 cents a share.
Prior to the cut, the dividend yield on VFC stock – an eye-watering 7.1% – was among the highest in the S&P 500. At the current rate of 30 cents per share quarterly, the dividend yield on VFC stock projects to 4.2%.
At 4.2%, VFC’s dividend yield remains extremely attractive by the standards of today’s market. The previous yield, however, was so high that it was pretty obviously unsustainable. After all, the reason VFC’s dividend yield topped 7% in the first place was because the stock lost more than half its value over the past year.
So, yes, sometimes stocks with the highest dividend yields can be fool’s gold. With that caveat out of the way, we’re pleased to report that the stocks with the highest dividend yields in the S&P 500 do indeed look good for their payouts.
From oil and gas companies swimming in cash thanks to high oil prices to a tobacco company and a telecom giant, the following stocks boast the highest dividend yields in the S&P 500 – and would appear to have ample resources to keep them up.
Take a look at the five S&P 500 stocks with the highest dividend yields below.
Market data, analysts’ estimates and analysts’ recommendations are as of Feb. 8, 2023, courtesy of YCharts and S&P Global Market Intelligence. Stocks are listed by dividend yields, from lowest to highest.
