Reversion to the mean. It's one of the most important investing principles. The idea is that asset prices tend to return to their historical means (or averages) over time.
This principle is the basis for the "Dogs of the Dow" investment strategy. This approach involves buying the 10 stocks in the Dow Jones Industrial Average (^DJI +0.24%) with the highest dividend yields at the beginning of the year.
But this strategy doesn't have to be limited to the Dow, to 10 stocks, or to a specific time of year. Should you buy the three highest-paying dividend stocks in the S&P 500 (^GSPC +0.26%) right now?
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1. Dow
Dow (DOW +2.78%) (which is unrelated to the Dow of the Dow Jones Industrial Average, by the way) is the biggest "dog of the S&P 500." The company's forward dividend yield is a sky-high 9.9%.
This lofty yield isn't the result of Dow growing its dividend by an impressive amount. The company hasn't increased its dividend payout in years. Unfortunately, Dow's high dividend yield is the result of its stock falling like a brick. The company's share price is down nearly 50% below its 12-month high.
NYSE: DOW
Key Data Points
Several factors have caused Dow's downturn. Some are macroeconomic issues, including inflation concerns and weaker consumer spending. Others are industry-specific. For example, Dow cited "difficult market dynamics" for the chemicals industry in its decision to shut down three upstream assets in Europe.
Should investors bet on a big bounce for Dow? I'd hold off for now. The company could be forced to cut its dividend. If it does, some investors could bail out on Dow, causing in its share price to tumble even lower. However, I wouldn't be surprised if a dividend cut sets the stage for a later rebound once the dust has settled.
2. LyondellBasell Industries NV
LyondellBasell Industries NV (LYB +2.95%) ranks as the second-highest-paying dividend stock in the S&P 500. Its forward dividend yield is an ultrahigh 8.71%.
Like Dow, LyondellBasell is a chemical company. Its shares have also taken a shellacking similar to Dow over the last 12 months. Unlike Dow, though, LyondellBasell's juicy yield is partially due to its dividend increases in recent years.
NYSE: LYB
Key Data Points
As you might expect, macroeconomic factors and chemical industry challenges have been major culprits behind LyondellBasell's sell-off over the past year. Global overcapacity has especially created a headwind for LyondellBasell.
I'm leery of buying LyondellBasell at this point despite its attractive dividend. The company's problems could persist for a while.
3. ConAgra Brands
ConAgra Brands (CAG +4.26%) claims the No. 3 spot among the S&P 500's highest dividend payers. The consumer packaged food company offers a forward dividend yield of 7.27%.
It's the same song but a different verse for ConAgra. The stock has fallen significantly over the last 12 months, part of a decline that began in early 2023. Up to that point, the company had increased its dividend for several years in a row. However, ConAgra has kept its dividend steady since its last hike in mid-2023.
NYSE: CAG
Key Data Points
Inflation has been a key issue for ConAgra, which markets brands including Banquet, Birds Eye, Healthy Choice, and Marie Callender's. The company has also experienced some supply chain challenges as well as negative publicity related to processed foods.
On a positive note, ConAgra's shares trade at under 10 times forward earnings. And while only three of the 18 analysts surveyed by LSEG in July rated the stock as a buy, the average 12-month price target for ConAgra reflects an upside potential of roughly 30%.
I'm not convinced this beaten-down stock is a great pick at this point, though. I think other stocks offer high dividend yields with better near-term and long-term prospects.
