The 25 Highest-Yielding Dividend Stocks in June

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. Given that 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 must 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

Market Cap (millions)

Dividend Yield

1

Windstream (NASDAQ: WIN  )

$5,798

10.4%

2

Ship Finance International  (NYSE: SFL  ) (NYSE: SFL  )

$1,750

8.7%

3

Vector Group  (NYSE: VGR  )

$1,989

8%

4

Consolidated Communications (NASDAQ: CNSL  )

$804

7.8%

5

Diamond Offshore Drilling (NYSE: DO  )

$6,546

7.3%

6

Transocean  (NYSE: RIG  )

$15,156

7.2%

7

Clear Channel Outdoor (NYSE: CCO  )

$2,849

7%

8

TPG Specialty Lending (NYSE:TSLX)

$1,198

7%

9

HollyFrontier (NYSE: HFC  )

$9,519

6.9%

10

Frontier Communications (NASDAQ: FTR  ) (NASDAQ: FTR  )

$5,823

6.8%

11

TAL International Group (NYSE: TAL  )

$1,473

6.6%

12

R.R. Donnelley & Sons  (NASDAQ: RRD  )

$3,158

6.6%

13

CVR Energy (NYSE: CVI  )

$4,015

6.5%

14

New York Community Bancorp (NYSE: NYCB  )

$6,875

6.4%

15

PDL BioPharma (NASDAQ: PDLI  )

$1,518

6.4%

16

Seaspan (NYSE: SSW  )

$2,135

6%

17

Capitol Federal Financial (NASDAQ: CFFN  ) (NASDAQ: CFFN  )

$1,735

6%

18

W&T Offshore (NYSE: WTI  )

$1,068

5.8%

19

CenturyLink (NYSE: CTL  )

$21,782

5.7%

20

Ensco  (NYSE: ESV  )

$12,483

5.7%

21

Quad/Graphics (NYSE: QUAD  )

$1,039

5.6%

22

Navios Maritime Acquisition (NYSE: NNA  )

$538

5.6%

23

National CineMedia (NASDAQ: NCMI  )

$971

5.5%

24

OneBeacon Insurance Group  (NYSE: OB  )

$1,457

5.5%

25

Newmont Mining (NYSE: NEM  )

$11,411

5.4%

Source: S&P Capital IQ as of June 5, 2014.

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

Windstream was covered last month. The company has a heavy debt load, is trying to transform its business, and at the same time is working to maintain its dividend in the face of falling revenue. If the company can execute on its transformation and maintain its dividend, the stock looks fairly valued. The risk for shareholders is that if the company has to cut its dividend, the stock will be crushed, because so many people hold shares for the payout. On the flip side, once the stock was crushed, it could be a good opportunity to pick up shares, as the company would be able to take whatever action needed with the spare cash. Given the risk of a dividend cut, I would keep the stock on my watchlist for now.

Ship Finance International was covered in November. After a review, I decided it should go in the "too hard" bin, given its high leverage and dealings with interrelated companies also owned by Norwegian shipping magnate John Fredriksen.

Vector Group was covered a year ago. Vector Group has steadily raised its dividend over the past 19 years, but it has always paid out more in dividends than it brings in through free cash flow. The company currently pays out over 400% of its free cash flow as dividends.

VGR Cash Dividend Payout Ratio (Annual) Chart

VGR Cash Dividend Payout Ratio (Annual) data by YCharts.

Paying out more than your free cash flow is unsustainable for any company, so what's going on? There are two things at work here. Vector has ownership stakes in multiple real estate investments that it does not consolidate into its financials. The company previously did not consolidate its 50% ownership of real estate broker Douglas Elliman Real Estate. Vector this year upped its stake in the business to 70.6% and now consolidates Douglas Elliman's results with its own. This consolidation led to a 45% boost of Vector's reported revenue, but if you consolidate the stake for last year, revenue was only up 9%. The second way Vector Group pays out more in cash than free cash flow is by issuing convertible debt, which, when converted, dilutes existing shareholders.

Foolish takeaway
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.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


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