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-yielding dividend stocks can be 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. Because 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 real-estate investment trusts, 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-yielding regular dividend stock. The only limitations I've set this time are that the dividend stocks must have a market cap greater than $500 million and must be corporations (i.e., no REITs , BDCs , LPs, MLPs , or LLCs).
Here are the 25 highest-yielding stocks the screen produced:
|
Company Name |
Market Cap (millions) |
Dividend Yield | |
|---|---|---|---|
|
1 |
Windstream (WINMQ) |
$4,780 |
12.50% |
|
2 |
Grupo Financiero Santander Mexico (BSMX) |
$14,951 |
12.10% |
|
3 |
The Buckle (BKE 0.38%) |
$2,165 |
11.70% |
|
4 |
SeaDrill Limited (SDRL) |
$17,338 |
10.60% |
|
5 |
North Atlantic Drilling Limited (NYSE: NADL) |
$2,098 |
10.50% |
|
6 |
Just Energy Group (JE) |
$1,100 |
9.89% |
|
7 |
Banco Santander, S.A. (SAN 1.93%) |
$101,451 |
9.14% |
|
8 |
Orange (ORAN 1.52%) |
$32,080 |
8.60% |
|
9 |
Ship Finance International (SFL -1.11%) |
$1,755 |
8.50% |
|
10 |
Frontier Communications (FTR) |
$4,878 |
8.20% |
|
11 |
Consolidated Communications (CNSL -0.47%) |
$764 |
8.13% |
|
12 |
Student Transportation (NASDAQ: STB) |
$509 |
8.10% |
|
13 |
Vector Group Ltd. (VGR 0.50%) |
$1,845 |
7.80% |
|
14 |
Vodafone (VOD) |
$107,739 |
7.69% |
|
15 |
Compass Diversified (CODI 0.86%) |
$905 |
7.68% |
|
16 |
CVR Energy (CVI -2.57%) |
$3,417 |
7.62% |
|
17 |
Telefonica Brasil, S.A. (VIV) |
$19,840 |
7.54% |
|
18 |
Diamond Offshore Drilling (DO) |
$6,576 |
7.40% |
|
19 |
Grupo Aeroportuario del Centro Norte (OMAB -1.08%) |
$1,230 |
7.33% |
|
20 |
Petrobras (PBR -0.70%) |
$74,046 |
7.12% |
|
21 |
Crescent Point Energy (CPG -0.70%) |
$13,904 |
7.10% |
|
22 |
HollyFrontier (HFC) |
$9,067 |
7.02% |
|
23 |
CenturyLink (LUMN) |
$18,067 |
6.91% |
|
24 |
Telefónica, S.A. (TEF 1.20%) |
$67,767 |
6.75% |
|
25 |
Booz Allen Hamilton (BAH -0.54%) |
$3,039 |
6.66% |
Source: S&P Capital IQ as of March 3, 2014.
Note: These stocks are a good place to start your research, but they're not formal recommendations.
I have covered Windstream multiple times in the past. Nothing has changed about the company's debt situation or dividend payout ratio.
Windstream has a mountain of debt, which continues to grow as a percentage of the company's equity.
WIN Debt to Equity Ratio (Quarterly) data by YCharts.
Further, Windstream continues to pay out as dividends an unsustainably high percentage of the cash it brings in.
WIN Cash Dividend Payout Ratio (TTM) data by YCharts.
The company's cash payout ratio has hovered around 100% for three years now.
We've seen situations like this before, most notably with Frontier Communications until recently:
FTR Cash Dividend Payout Ratio (TTM) data by YCharts.
Frontier's stock price was cut in half after the dividend cut, erasing the gains made from collecting the large dividends. I will reiterate what I wrote before: "Investing in Windstream looks like picking up quarters in front of a steamroller; sooner or later you're going to get crushed."
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.
