The 25 Highest-Yielding Dividend Stocks in October

Dividend investing is popular again. Investors have taken to heart Jeremy Siegel's studies, which show that higher-yielding stocks tend to offer greater returns over time than low- or no-yield stocks.

The highest-paying dividend stocks can be very tantalizing. So long as a stock yielding 15% doesn't lose value, you'll make 15% in one year! In more cases than not, however, an astronomical yield is a bad sign for a stock. Since dividend yields and stock prices move in opposite directions, a high yield usually means investors have begun to worry about the business and driven down its stock price.

However, certain types of companies such as REITs have to pay out most of their income as dividends, so their yields will be higher than "normal." Dividends are not guaranteed; you need to make sure that a business is generating enough cash to pay its dividend, or your investment could be disastrous.

I ran a screen for the highest-paying regular dividend stocks; the only limitations I've set this time is that the dividend stocks must have a market cap greater than $500 million, must be primarily listed in the U.S. (no American depositary receipts) and must be corporations (no REITs, BDCs, LPs, MLPs, or LLCs).

Here are the 25 highest-yielding stocks the screen produced:

 Rank

Company Name

Dividend Yield

Market Cap (millions)

1

Windstream (NASDAQ: WIN  )

12.2%

$4,843

2

Ship Finance International Limited 

10%

$1,452

3

Vector Group 

9.5%

$1,517

4

Frontier Communications (NASDAQ: FTR  )

9.3%

$4,289

5

Consolidated Communications 

8.8%

$704

6

Compass Diversified 

8.2%

$849

7

Seadrill 

7.8%

$21,850

8

HollyFrontier 

7.6%

$8,407

9

PDL BioPharma

7.5%

$1,116

10

RLI

7.3%

$1,853

11

First Financial Bancorp 

7.1%

$873

12

CenturyLink (NYSE: CTL  )

6.8%

$18,987

13

Capitol Federal Financial 

6.6%

$1,826

14

New York Community Bancorp 

6.6%

$6,719

15

Valley National Bancorp 

6.6%

$1,979

16

R.R. Donnelley & Sons 

6.5%

$2,904

17

VimpelCom

6.4%

$21,969

18

Costamare 

6.2%

$1,297

19

CTC Media 

6%

$1,667

20

FirstEnergy 

5.9%

$15,503

21

Pepco Holdings 

5.9%

$4,594

22

OneBeacon Insurance Group 

5.8%

$1,377

23

Diamond Offshore Drilling 

5.6%

$8,719

24

Altria Group  

5.5%

$69,610

25

PBF Energy  

5.4%

$877

Source: S&P Capital IQ as of Oct. 7, 2013.

Note: These stocks are a good place to start your research, but they're not formal recommendations.

Let's look at the highest-yielding dividend stock this month: Windstream.

Windstream is a rural telecom provider that, like fellow rural telecoms Frontier Communications and CenturyLink, has been struggling to pay a stable dividend while dealing with a massive debt load. Unlike Frontier and CenturyLink, however, Windstream has not had to cut its dividend yet.

I stress the "yet" part because Windstream's cash payout ratio has steadily climbed for the past three years. It now stands above 100%, meaning the company pays out slightly more in interest expenses than it brings in in cash.

WIN Cash Dividend Payout Ratio TTM Chart

WIN Cash Dividend Payout Ratio TTM data by YCharts.

We have seen how this ends before. In February 2013, CenturyLink faced the same challenge and had to cut its dividend by 25%. The stock fell nearly as much after the announcement.

CTL Cash Dividend Payout Ratio TTM Chart

CTL Cash Dividend Payout Ratio TTM data by YCharts.

A year before that, in February 2012, Frontier Communications cut its dividend after its cash payout ratio went above 100%.

FTR Cash Dividend Payout Ratio TTM Chart

FTR Cash Dividend Payout Ratio TTM data by YCharts.

Investing in Windstream looks like picking up quarters in front of a steamroller; sooner or later you're going to get crushed. I'd pass on this stock.

Foolish bottom line
Remember, these seemingly irresistible yields could be ticking time bombs, so do your own due diligence. Also, make sure you diversify your picks across various sectors. As investors relearn every decade or so, you never want to put all your eggs in one basket -- no matter how tempting the dividends are.

More Foolish Insight
Dividend stocks can make you rich. Over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, Motley Fool analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


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