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 top-paying dividend stocks can be very tantalizing. So 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 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.
I ran a screen for the highest-paying regular dividend stocks; the only limitations I've set this time is that the dividend stocks must have a market cap greater than $500 million, must be primarily listed in the U.S. (no American depositary receipts), and must be corporations (no REITs , BDCs , LPs, MLPs, or LLCs).
Here are the 25 highest-yielding stocks the screen produced:
|
Rank |
Company Name |
Dividend Yield |
Market Cap (Millions) |
|---|---|---|---|
|
1 |
Windstream |
12.40% |
$4,810.3 |
|
2 |
Vector Group |
9.34% |
$1,538.2 |
|
3 |
Ship Finance International |
9.31% |
$1,563.0 |
|
4 |
Frontier Communications |
8.66% |
$4,617.9 |
|
5 |
National Presto Industries |
8.46% |
$530.3 |
|
6 |
Consolidated Communications |
8.14% |
$763.3 |
|
7 |
Nordic American Tankers |
7.96% |
$596.3 |
|
8 |
Home Loan Servicing Solutions |
7.74% |
$1,651.9 |
|
9 |
CenturyLink |
7.13% |
$17,909.5 |
|
10 |
Werner Enterprises |
7.06% |
$1,745.6 |
|
11 |
FirstEnergy |
6.75% |
$13,625.9 |
|
12 |
First Financial Bancorp |
6.63% |
$929.9 |
|
13 |
HollyFrontier |
6.51% |
$9,770.6 |
|
14 |
Costamare |
6.35% |
$1,273.1 |
|
15 |
New York Community Bancorp |
6.05% |
$7,292.0 |
|
16 |
Denbury Resources |
5.97% |
$6,233.6 |
|
17 |
PDL BioPharma |
5.94% |
$1,414.5 |
|
18 |
Oritani Financial |
5.91% |
$734.1 |
|
19 |
Seaspan |
5.86% |
$1,458.4 |
|
20 |
Diamond Offshore Drilling |
5.84% |
$8,331.0 |
|
21 |
Pepco Holdings |
5.70% |
$4,735.4 |
|
22 |
Anixter International |
5.64% |
$2,887.4 |
|
23 |
R.R. Donnelley & Sons |
5.55% |
$3,403.2 |
|
24 |
Entergy |
5.33% |
$11,105.7 |
|
25 |
OneBeacon Insurance Group |
5.33% |
$1,503.6 |
Source: S&P Capital IQ as of Dec. 3, 2013.
Note that these stocks are a good place to start your research, but they're not formal recommendations.
I covered Windstream in October. Nothing has changed about the company's debt situation. As I wrote then, "Investing in Windstream looks like picking up quarters in front of a steamroller; sooner or later you're going to get crushed." I would still pass on the stock.
I covered Ship Finance International last month and concluded:
Warren Buffett has made billions jumping over one-foot hurdles. Ship Finance International is certainly not a one-foot hurdle. There are easier-to-understand businesses out there [for which] you can wrap your head around the margin of safety, or lack thereof. I'd pass.
Vector Group has an interesting assortment of assets that I covered in June, including the fourth-largest cigarette manufacturer, multiple real estate holdings, and a 50% stake in the largest residential real estate broker in New York. The company pays out well over 100% of its free cash flow by issuing debt and convertible debt. I'd pass on the company and look instead at Lorillard or my perennial favorite and longtime holding Phillip Morris International.
Foolish bottom line
Remember, these 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.
