The 25 Top-Yielding Dividend Stocks in May

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

The top-yielding dividend stocks can be very tantalizing. As 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 that investors have begun to worry about the business and driven down its stock price.

However, certain types of companies such as real estate investment trusts, or 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 top-yielding dividend stocks. The limitations I've set this time is that the stocks must have a market cap greater than $400 million, be primarily listed in the U.S., and must be a corporation, so no REITs or master limited partnerships (MLPs.) I've also excluded stocks for which a special dividend heavily influenced the yield.

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

 

Company

Market Cap (millions)

Dividend Yield

1

Arlington Asset Investment (NYSE: AI  )

$445

13.00%

2

Windstream (NASDAQ: WIN  )

$4,955

12.00%

3

Vector Group

$1,423

10.10%

4

Frontier Communications (NASDAQ: FTR  )

$4,020

9.93%

5

Ship Finance International

$1,437

9.25%

6

Seadrill Limited

$18,202

8.65%

7

Consolidated Communications

$723

8.60%

8

Compass Diversified

$809

8.60%

9

R.R. Donnelley & Sons Company

$2,209

8.54%

10

First Financial Bancorp.

$885

7.80%

11

PDL BioPharma

$1,096

7.66%

12

New York Community Bancorp

$5,859

7.52%

13

VimpelCom

$18,701

7.48%

14

Home Loan Servicing Solutions

$1,286

7.43%

15

Nordic American Tankers

$559

7.39%

16

Daktronics

$420

7.36%

17

Werner Enterprises

$1,704

7.31%

18

Valley National Bancorp

$1,815

7.13%

19

Capitol Federal Financial

$1,762

6.93%

20

Costamare

$1,239

6.52%

21

TAL International Group

$1,351

6.52%

22

OneBeacon Insurance Group

$1,294

6.19%

23

United Online

$609

6.05%

24

Intersil

$1,010

6.05%

25

CenturyLink

$22,826

5.82%

Source: S&P Capital IQ. Data as of May 5.

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

Compared to April, the biggest change is that Pitney Bowes (NYSE: PBI  ) dropped from third to out of the top 25. In April, I warned that "there's a good chance Pitney Bowes will have to cut its quarterly dividend. I'd pass on this one." Last Tuesday, the mail services company dropped 15.6% after it missed earnings expectations and cut its quarterly dividend in half, from $0.375 to $0.1875 per share. While the stock has recovered, most of the drop the forward yield is now 4.85%. Long term, cutting the dividend is good for the company as it gives it more cash for its transition away from physical mail to business services.

Let's take a look at the top 2:

The top-yielding dividend stock was again Arlington Asset Management. The company is basically a mortgage REIT. However, it is structured as a corporation to take advantage of operating and capital loss carry-forwards. I examined Arlington Asset Management last month and you can read about it here.

Windstream is second with a yield of 12%. The landline telecom company reports earnings on Thursday. Analysts expect the company to report earnings per share of $0.11 and revenue of $1.53 billion. The company has been working to transition to where it gets most of its revenue from business as opposed to residential clients. Last quarter, the company reaffirmed its commitment to its $0.25-per-quarter dividend, despite the fact that the company pays out 87% of its free cash flow as dividends.

FTR Dividend Chart

Source: FTR Dividend data by YCharts.

Investors in Windstream should take note of what happened at Frontier Communications, No. 4 on our list. Frontier is in the same business as Windstream and also used to pay out a high percentage of its free cash flow as dividends.

In Feb. 2012, Frontier cut its dividend from $0.1875 to $0.10 per quarter and investors sold off the stock, dropping as much as 35% over the following month before recovering slightly. As Windstream's payout ratio teeters near 90%-100%, investors should pass on the 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.

If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.


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