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 dividend yields can be very tantalizing. As 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. Since dividend yields and stock prices move in opposite directions, a high yield usually means that investors have begun to worry about the business and driven down its stock price.
However, certain types of companies such as REITs have to 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.
Three months ago, I ran a screen for the highest-yielding stocks, and it got such a good reception that I'm doing it again this quarter. The only limitation I've set this time is that the dividend stocks must have a market cap greater than $500 million.
Here are the top 25 highest-yielding stocks the screen produced:
Market Cap (in millions)
Invesco Mortgage Capital
American Capital Agency
ARMOUR Residential REIT
Cypress Sharpridge Investments
Two Harbors Investment
Annaly Capital Management
Anworth Mortgage Asset
BlackRock Kelso Capital
Niska Gas Storage Partners LLC
Ship Finance International
Source: Capital IQ, a division of Standard & Poor's.
These stocks are a good place to start your research, but they're not formal recommendations. Remember, their 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.
Editor's note: SandRidge Mississippian Trust was originally included in this article, but due to a misstated yield, it has been updated. The Fool regrets the error.
Dan Dzombak's musings and articles he finds interesting can be found on his Twitter account: @DanDzombak. He owns shares of Annaly Capital Management and Frontier Communications, but he holds no other position in any company mentioned.
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