4 Top Dividend Payers of the S&P 500

Advance Auto Parts was one of the highest-yielding stocks in the S&P 500 index not so long ago. And then it drastically reduced its dividend, trimming the quarterly payout by 83%. This is why simply buying the highest yield isn't always the best idea.

For those seeking out high yields, here are the four top dividend-yielding stocks in the S&P 500 index at the moment. Let's take a closer look at each and determine why each company is on the list and whether they will remain there.

1. Altria: A slow attrition and a rising risk

Altria (MO -0.37%) sits atop the S&P 500 for dividend yield right now, with a huge 8.5% yield. The company mainly sells cigarettes in the United States under iconic names like Marlboro. This single fact might keep many investors away, given the health issues surrounding cigarettes. But there's more to the story.

Altria has long faced a slow attrition of customers as smoking has fallen out of favor. It has been increasing prices to offset the impact, allowing it to keep supporting its big dividend. Meanwhile, it has looked for ways to reach beyond cigarettes.

There are risks on both sides here. It is likely that, eventually, the number of smokers will drop so low that raising prices will no longer be a viable tactic. And it has made material strategic errors as it looks to expand, including billions in write-offs related to a marijuana investment and its investment in Juul, a vaping company that fell on hard times. Investors with a conservative bent should probably avoid Altria.

2. KeyCorp: Caught up in a crisis that has ended

KeyCorp (KEY 0.62%) is a regional U.S. bank with an 8.2% dividend yield. The company's shares got caught up in the banking crisis in early 2023 when a number of regional banks faced bank runs, and a few ended up closing. However, KeyCorp seems to have held up fairly well, with deposits only falling around 1.6% in the first quarter of the year. While banking and checking account deposits slid nearly 5%, it appears that much of that cash merely shifted to things like CDs, which offer higher yields, within the bank itself.

That said, KeyCorp's Tier 1 ratio was 9.1%, which is a bit low compared to the strongest banks. So there is a reason for the high yield. And yet, during the first-quarter 2023 earnings conference call, management highlighted its commitment to the dividend. While this is not a low-risk investment choice, more aggressive types might want to do a deep dive as this could be a case of the baby getting tossed out with the bathwater.

3. Lincoln National: Stuck in an insurance rut

Lincoln National (LNC -0.54%) has a roughly 7.4% dividend yield. The company operates in the insurance industry. New accounting rules led to a first-quarter 2023 loss of $5.37 per share compared to a profit of $8.39 in the same quarter of 2022. Those two figures help explain why investors might be worried about the dividend here. 

Adding to the concern is that Lincoln National is "Executing on our objectives to rebuild capital and increase ongoing free cash flow," according to management. Coupled with the red ink, the company is clearly not operating from a position of strength today. Management estimates that its adjusted earnings, which takes out one-time items, totaled $1.52 per share, which is more than enough to pay the stock's $0.45-per-share quarterly dividend. However, this is clearly a turnaround play right now that's only appropriate for more aggressive investors.

4. Verizon: Operating in a capital-intensive sector

Telecom Verizon Communications (VZ 1.17%) and its roughly 7.2% dividend yield rounds out the list of top S&P 500 dividend stocks. The company is one of the largest cellular service providers in the United States. It also has sizable operations in lines directly into customers' homes, such as its fiber-optic-based FiOS business. It has long been a leading telecom stock and a fairly consistent dividend payer. Although the dividend hasn't increased every year, it has trended generally higher over time. It is probably the lowest-risk option on this list.

And yet there are some caveats to consider. For example, the telecom industry is capital-intensive and cellular technology is in the middle of yet another upgrade cycle. Verizon's balance sheet is heavily leveraged with a debt-to-equity ratio of roughly 1.6 times, a bit higher than the 1.4 times or so of its closest peer, AT&T. Also, the company's legacy businesses are under pressure as more people switch to using cellular-only services. Cellular service, meanwhile, is highly competitive. So Verizon's high yield exists for a reason, though, given the history here, the company has proven to be an adept competitor and probably offers a good risk/reward balance for most investors.

Tread carefully

The four companies on this list of high-yield stocks are all very different. They all have high yields for a reason, with some in a better position to sustain the dividends than others. KeyCorp and Verizon are probably the most attractive, given their histories and businesses. Altria and Lincoln National are more risky, with Altria bringing up social issues that might lead investors to look elsewhere.