Should You Buy the 5 Highest-Paying Dividend Stocks in the S&P 500?

Don't be dismissive of dividends. Even if you're not focused on building an income-generating portfolio, dividends are important. They accounted for nearly 40% of the S&P 500's total returns over the last two decades. 

Actually, the S&P 500 isn't a bad place to look for top dividend stocks to buy. Some stocks in the index offer especially juicy yields now. Should you buy the five highest-paying dividend stocks in the S&P 500?

The high five

The five stocks with the highest dividend yields in the S&P 500 right now are:

 Data sources: Finviz, Google Finance. Dividend yields as of Sept. 26, 2023.

These stocks represent multiple sectors and industries. Devon Energy is an oil and natural gas producer. Altria Group is a giant tobacco company. Walgreens Boots Alliance operates several large pharmacy chains. Verizon Communications is a telecommunications leader. KeyCorp offers consumer and commercial banking services.

Why are their dividends so high?

Devon Energy ranks as the highest-yielding dividend stock in the S&P 500 for a couple of reasons. The "bad" reason is that Devon's share price has fallen by more than 20% so far in 2023, driving its dividend yield higher than it would otherwise be. Oil prices declining from their 2022 highs were the culprit behind this dismal performance. Actually, though, Devon's yield has also fallen because the company has reduced its payouts several times.

The "good" reason behind Devon's high yield is the company's unique dividend structure. Its dividend has two components -- a fixed portion and a variable portion. The variable portion fluctuates based on how much free cash flow the company generates each quarter. Even though lower free cash flow has been problematic for Devon this year, it has still been able to fund a really attractive dividend.

Altria Group's high yield is partially due to its share price sinking. It's down by close to 8% this year. However, the more important factor is that the tobacco giant continues to steer a big chunk of its profits toward the dividend program. Altria has increased its dividends for 53 consecutive years, making it a member of the elite group of stocks known as Dividend Kings.

Walgreens isn't too far behind Altria with 47 consecutive years of payout increases. The main reason for its ultra-high dividend yield, though, is that the stock has plunged by more than 40% year to date following a 28% drop in 2022. Walgreens' revenue has been negatively impacted by lower COVID-19-related demand. The company has also had turnover in its executive ranks. 

Verizon has boasted a relatively high dividend yield for years. However, its current level is largely the result of a steep decline in its share price that began in 2020 and hasn't turned around yet. Verizon faces stiff competition in the wireless market. It also carries more than $182 billion in debt on its books. 

KeyCorp has historically paid a dividend with a solid but not spectacular yield. Its yield skyrocketed this year, though, after its share price plunged in reaction to the regional banking crisis this spring. S&P Global also downgraded KeyCorp's credit rating last month. 

Are any of them good picks to buy?

All five of these stocks have high dividend yields at least in part because of negative factors. Does that mean that none of them are worthy of investors' consideration? Not necessarily.

I think that risk-averse investors would be better off looking elsewhere. Each of these stocks could remain highly volatile. Growth investors can also no doubt find more appealing stocks to add to their portfolios.

On the other hand, income investors with high risk tolerances could like any or all of these stocks. Anyone opposed to "sin stocks" will probably cross Altria off their list due to its tobacco focus. All five, though, could perform better over the next several years than they have so far in 2023.