When I recently ran across a list of the highest-yielding stocks in the S&P 500, I knew to not get excited. Very high yields are often tied to stocks whose share prices have sunk -- frequently for good reason. Still, I thought it might be worth running through the list to see whether any of its members got high marks in our CAPS community of investors

Though some had received four out of five stars, it may be telling that none have earned the top five-star rating. Presumably, if one did, it might become so compelling that investors would flock into it … thereby driving up its price, making it less attractive, and robbing it of a star.

You'll find the four-star stocks below:

Company

Dividend Yield

Payout Ratio

5-Year Dividend Growth Rate

CenturyLink

8.5%

99%

64.6%

Eli Lilly (NYSE: LLY)

5.8%

51%

5.9%

Verizon (NYSE: VZ)

6.7%

220%

3.2%

FirstEnergy

6.1%

64%

7.0%

Duke Energy

6.1%

104%

NM*

Windstream (Nasdaq: WIN)

9.0%

137%

NM*

Altria (NYSE: MO)

7.1%

82%

NM*

Data: Yahoo! Finance, Motley Fool CAPS.
* Duke Energy spun off Spectra Energy in 2006. Windstream was spun off from Alltel and merged with Valor Telecom in 2006. Altria spun off Philip Morris International in 2008.

The four-star rating, reflecting considerable bullishness by CAPS participants, is enough to make me consider these companies at least in passing. But most of the businesses above have dangerously steep payout ratios (the percentage of earnings paid out in dividends), giving them little wiggle room. If you're paying out more in dividends than you're earning in profits, you'd better hope your income rises over time.

That's not the only mark against these stocks. Verizon has been criticized for a slow network and termination policies that breed customer dissatisfaction. Rural telecom company Windstream is sporting a lot of debt, and like other telecom companies, it's dealing with a shrinking base of landline customers as more people switch to cell phones. Regulations, a shrinking U.S. market, and that whole "cancer" thing will likely keep Altria's tobacco business from growing quickly. Finally, Eli Lilly is facing patent expiration on several key moneymaking drugs, and failed to increase its dividend in the past year.

There may be some terrific dividend-payers among high-yielding companies, but Fools should still approach any such candidates with caution. A wonderful business that offers a 3% or 4% yield and has steadily raised its payout over time can be a much better choice than a company whose tantalizingly fat yield just can't last. 

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Duke Energy and Spectra Energy are Motley Fool Income Investor picks. Philip Morris International is a Motley Fool Global Gains selection. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.