Published by Nick McCullum on May 25th, 2018
The S&P 500 is the most widely-followed index of large-capitalization U.S. equities. For this reason, it is an excellent place to look for potential investment ideas.
You can download an Excel document containing the S&P 500 index constituents, along with relevant financial metrics, below:
High yield investors will naturally be mostly interested in the highest-yielding stocks in the S&P 500.
With this in mind, today’s article covers the 10 highest yielding S&P 500 stocks in detail.
Table of Contents
- High Yield S&P 500 Stocks #10: Ventas (VTR)
- High Yield S&P 500 Stocks #9: PPL Corporation (PPL)
- High Yield S&P 500 Stocks #8: Welltower (WELL)
- High Yield S&P 500 Stocks #7: AT&T (T)
- High Yield S&P 500 Stocks #6: HCP, Inc. (HCP)
- High Yield S&P 500 Stocks #5: SCANA Corporation (SCG)
- High Yield S&P 500 Stocks #4: L Brands (LB)
- High Yield S&P 500 Stocks #3: Iron Mountain (IRM)
- High Yield S&P 500 Stocks #2: Kimco Realty (KIM)
- High Yield S&P 500 Stocks #1: CenturyLink (CTL)
High Yield S&P 500 Stocks #10: Ventas (VTR)
Dividend Yield: 6.0%
Market Capitalization: $18.9 billion
Sector: Real Estate
Ventas is a diversified real estate investment trust (REIT) with a portfolio of more than 1,200 buildings in the senior housing, healthcare, and healthcare research space. The trust owns property in the United States, Canada, and the United Kingdom.
Ventas is known for delivering excellent total returns over long periods of time. The trust has delivered an industry-leading compound annual return to shareholders of more than 20% since January 1, 2000.
Looking ahead, the trust’s dividend appears safe for the foreseeable future as its per-share profit distributions to shareholders are well-supported by underlying business operations.
With the release of Ventas’ first quarter financial results on April 27, 2018, Ventas updated its 2018 fiscal guidance. The trust is now expecting to generate normalized funds from operations between $3.99 and $4.07 for the twelve-month reporting period.
For context, the bottom of this guidance band implies a dividend payout ratio of 79%, which implies that the trust’s dividend is quite safe despite Ventas’ position as one of the 10 highest-yielding stocks in the S&P 500.
High Yield S&P 500 Stocks #9: PPL Corporation (PPL)
Dividend Yield: 6.0%
Market Capitalization: $19.2 billion
PPL Corporation is a regulated gas and electric utility headquartered in Allentown, Pennsylvania. The company serves approximately 10 million customers in the United States and the United Kings through three operating segments: Kentucky Regulated, Pennsylvania Regulated, and U.K. Regulated.
Surprisingly, the majority of PPL’s business is actually generated in the United Kingdom. This is intentional. The business environment for regulated utilities in this market is far more favorable. Regulatory agencies are willing to allow PPL to operate with higher margins and returns on invested capital than their peers in the United States.
Looking ahead, PPL’s future appears bright. The utility has plans to invest $15 billion in infrastructure through fiscal 2022. This investment will be focused on developing smarter, more secure energy grids with the specific goal of advancing the clean energy future.
Until these outcomes materialize, it is important to recognize that the company’s dividend is safe despite its exceptionally high yield. PPL is forecasting for 2018 earnings-per-share from continuing operations between $2.20 and $2.40. Using the midpoint of this guidance band ($2.30) combined with PPL’s current quarterly dividend payment of $0.41, which implies a payout ratio of 71%. This conservative payout ratio leads us to believe that PPL is likely to continue raising its dividend even in the event that earnings growth stalls temporarily.
High Yield S&P 500 Stocks #8: AT&T (T)
Dividend Yield: 6.1%
Market Capitalization: $201.1 billion
AT&T is the largest telecommunications company in the United States as measured by market capitalization. Its only competitor of similar size is fellow telecommunications giant Verizon Communications (VZ). AT&T offers a variety of telecommunications services, including wireless and cable TV, as well as satellite television through its subsidiary DirecTV. AT&T does business through four reporting segments: Business Solutions, Entertainment Group, Consumer Mobility, and International.
We believe that AT&T is one of the safest securities available today with a yield above 5%. This is due to the company’s size, stability, and revenue mix, which is primarily composed of recurring revenue with low churn.
In addition, AT&T has a very conservative payout ratio in the context of its outstanding dividend yield. The company is on pace to deliver adjusted earnings-per-share of around $3.50 for fiscal 2018 and currently pays a quarterly dividend of $0.50, which implies a payout ratio of just 57%. For risk-averse investors looking for current income, AT&T has wide appeal.
High Yield S&P 500 Stocks #7: Welltower (WELL)
Dividend Yield: 6.2%
Market Capitalization: $20.9 billion
Sector: Real Estate
Welltower is a healthcare-focused real estate investment trust headquartered in Toledo, Ohio. It invests alongside leading senior housing operators, post-acute providers, and broader healthcare systems to acquire attractive properties in premier markets. Welltower has operations in the United States, Canada, and the United Kingdom.
For dividend growth investors, there’s a lot to like about Welltower. The company has a long history of consistently increasing its dividends. More specifically, Welltower has paid steady or increasing dividends since 1985.
Looking ahead, Welltower’s dividend continues to be well-covered by the trust’s underlying cash flows. With the release of first-quarter earnings on April 25th, the trust reaffirmed its financial guidance for fiscal 2018.
Welltower expects to generate funds from operations attributable to common stockholders of $3.95 to $4.05. For context, the trust pays a quarterly dividend of $0.87, which implies a payout ratio of 88% using the bottom of its 2018 guidance band. While a payout ratio of 88% is slightly higher than some of the other companies on this list, we have no concerns about the company’s ability to sustain its dividend payments moving forward.
High Yield S&P 500 Stocks #6: HCP, Inc. (HCP)
Dividend Yield: 6.4%
Market Capitalization: $10.9 billion
Sector: Real Estate
Like Welltower, HCP is a healthcare-focused real estate investment trust. HCP operates in three reporting segments: Senior Housing, Life Sciences, and Medical Offices. HCP owns approximately 800 properties of which more than 90% operate under private-pay agreements.
Interestingly, HCP was once the only real estate investment trust to be a Dividend Aristocrat. The requirements to be a Dividend Aristocrat are:
- Be in the S&P 500
- Have 25+ consecutive years of dividend increases
- Meet certain minimum size & liquidity requirements
However, HCP spun off one of its operating units as Quality Care Properties and implemented a proportionate dividend cut at the same time. This dividend cut excluded the company from being a member of the Dividend Aristocrats Index. Today, Federal Realty Investment Trust (FRT) is the only REIT to be a Dividend Aristocrat.
Despite HCP’s exclusion from the Dividend Aristocrats, it is still an appealing investment for income-oriented investors because of its combination of high yield and conservative payout ratio. On May 3rd, the trust reaffirmed its 2018 financial guidance, which calls for adjusted funds from operations per unit between $1.77 and $1.83. Using the midpoint of this guidance band ($1.80) and the trust’s current quarterly distribution payment ($1.48) allows us to calculate a payout ratio of 82%.
High Yield S&P 500 Stocks #5: L Brands (LB)
Dividend Yield: 6.8%
Market Capitalization: $9.8 billion
Sector: Consumer Discretionary
L Brands is an international specialty retailer that operates more than 3,000 company-owned stores worldwide. L Brands operates the following well-known brands:
- Victoria’s Secret
- Bath & Body Works
- La Senza
- Henri Bendel
Victoria’s Secret contributes approximately two-thirds of the company’s annual sales, with the majority of the balance coming from Bath & Body Works.
Unlike most of the other high-yield stocks on this list, L Brands has not historically traded with a high dividend yield. Instead, the company’s high yield is a result of a falling stock price.
Like many other retailers, L Brands’ stock has been pummeled due to the perception that eCommerce will permanently disrupt its business model. This has caused the company’s yield to surge from its “normal” levels of 2%-4% to its current level of nearly 7%.
Despite these challenges, the company may still have investment appeal due to its valuation and exceptionally high yield. Of paramount importance is the safety of this yield.
In its most recent earnings release, L Brands provided full-year financial guidance. The company expects to generate earnings-per-share between $2.70 and $3.00 for the twelve-month reporting period. L Brands’ quarterly dividend stands at $0.60 (a level which has not changed since 2016), which implies a payout ratio of 84% using the midpoint of its recently-announced financial guidance.
L Brands’ payout ratio is reasonably high, particularly in the context of the changes being experienced by the retail industry. Still, investors should keep in mind that the company’s dividend will be safe if L Brands can deliver on its 2018 earnings guidance.
High Yield S&P 500 Stocks #4: SCANA Corporation (SCG)
Dividend Yield: 6.9%
Market Capitalization: $5.0 billion
SCANA Corporation is a utility holding company headquartered in Cayce, South Carolina. The company does business through one major operating subsidiary: the South Carolina Electric & Gas Company, which is an electricity provider to more than 700,000 customers in South Carolina. Elsewhere, SCANA provides gas services to 1.4 million customers in Georgia, North Carolina, and South Carolina.
SCANA is not providing earnings guidance right now due to a pending merger with Dominion Energy (D) (which, we note, is not a sure thing). Still, we can assess the company’s current dividend safety by comparing its current quarterly dividend payment to last year’s earnings-per-share figure.
Last year, SCANA Corporation generated earnings-per-share of $4.20. The company’s current quarterly dividend of $0.6125 implies a payout ratio of just 58%. The company’s combination of high dividend yield and sub-60% payout ratio makes it a compelling opportunity for income-oriented investors looking for safer high yields.
High Yield S&P 500 Stocks #3: Iron Mountain (IRM)
Dividend Yield: 7.1%
Market Capitalization: $9.4 billion
Iron Mountain is a provider of physical and digital document management and destruction services to both government and corporations in the United States and worldwide. Iron Mountain converted to a real estate investment trust in 2014. The company provides services to more than 90,000 corporate clients and owns 1,400 facilties in 53 countries worldwide.
Iron Mountain is the first company on this list to have a dividend yield above 7%. Accordingly, investors should be very concerned with the safety of its continuing dividend payments.
With the release of first quarter financial results, Iron Mountain reiterated its 2018 financial guidance, which calls for adjusted funds from operations (AFFO) growth of 5% to 13%. The trust reported AFFO per unit of $2.77 in fiscal 2017, which implies 2018 should deliver AFFO per unit between $2.91 and $3.13. For context, the trust currently pays a quarterly dividend of $0.59, which implies a payout ratio of 81% using the bottom of Iron Mountain’s 2018 guidance band.
High Yield S&P 500 Stocks #2: Kimco Realty (KIM)
Dividend Yield: 7.5%
Market Capitalization: $6.4 billion
Sector: Real Estate
Kimco Realty is one of the largest REITs focusing on shopping centers. The company owns more than 500 U.S. shopping centers spread through more than 30 U.S. states and Puerto Rico.
Kimco’s strategy is to focus on high-density markets with above-average levels of disposable income. This results in a property portfolio that is concentrated in areas were store traffic is stronger than average.
Still, Kimco’s stock price reflects continued worries about the future of traditional retail shopping. This has pushed the company’s dividend yield higher, creating a compelling opportunity for income-oriented investors.
As always, though, the safety of the dividend must be considered. Fortunately, Kimco’s dividend is currently well-covered by the REIT’s underlying cash flows.
With the release of Kimco’s first-quarter earnings release in April, the trust reaffirmed its 2018 guidance for funds from operations. The trust continues to expect funds from operations to fall in the range of $1.42 to $1.46. The trust currently pays a quarterly dividend of $0.28 per unit, which implies a payout ratio of 79% using the bottom of 2018’s funds from operations guidance.
High Yield S&P 500 Stocks #1: CenturyLink (CTL)
Dividend Yield: 11.7%
Market Capitalization: $20.1 billion
CenturyLink is a Louisiana-based telecommunications company whose earliest predecessor (the Oak Ridge Telephone Company) was sold for $500 in 1930 with only 75 subscribers. Sine then, CenturyLink has grown into a $20 billion company that operates through two reporting segments: Business and Consumer.
CenturyLink is currently the highest-yielding member of the S&P 500. Accordingly, investors should ask why the markets have assigned such a pessimistic valuation to this telecommunications company.
It is primarily due to the company’s recently-completed acquisition of Level 3 Communications. While the deal is strategically intriguing and is expected to generate nearly $1 billion of annualized cost synergies, it burdened CenturyLink’s already-stressed balance sheet with an additional $13 billion of debt (the company also issued mroe than 500 million shares to fund the transaction).
With that said, the market appears to be regaining some confidence in CenturyLink. More importantly, the company does not appear to have any intentions to cut its dividend in the foreseeable future.
CenturyLink released first-quarter earnings in early May. In the earnings release, CenturyLink announced that it expects to generate between $3.15 billion and $3.35 billion of free cash flow while only paying $2.30 billion of dividends. Said another way, CenturyLink anticipates to generate sufficient cash flow to pay its dividend for the upcoming fiscal year.
For income-oriented investors (and, indeed, value investors), CenturyLink’s high yield and dividend coverage makes it an appealing investment opportunity from a total return perspective.
In this article, we examined the 10 S&P 500 stocks with the highest dividend yields. Interestingly, each of the companies in this article are generating sufficient cash flow or earnings to fund their dividend for the foreseeable future.
This article may be just the beginning of your search for investment opportunities. If you’re looking for other dividend stocks with specific yield and payout characteristics, the following Sure Dividend databases will be useful:
- The Complete List of High Dividend Stocks With 5%+ Dividend Yields
- The Complete List of 40+ Monthly Dividend Stocks
Alternatively, you may be looking for high yield dividend stocks from other stock market indices. Sure Dividend maintains stock market databases of the following public equity indices:
- The Complete List of Russell 2000 Stocks
- The Complete List of Dow Jones Industrial Average Stocks
- The Complete List of NASDAQ-100 Stocks
- The Complete List of Wilshire 5000 Stocks
- The Complete List of S&P/TSX Composite Index Stocks
- The Complete List of TSX 60 Stocks
Lastly, you may want to invest in high yield dividend stocks from a particular sector of the stock market. If that is the case, you will find the following resources useful:
- The Complete List of Dividend-Paying Telecommunications Stocks
- The Complete List of Dividend-Paying Consumer Cyclical Stocks
- The Complete List of Dividend-Paying Consumer Staples Stocks
- The Complete List of Dividend-Paying Energy Stocks
- The Complete List of Dividend-Paying Healthcare Stocks
- The Complete List of Dividend-Paying Financial Sector Stocks
- The Complete List of Dividend-Paying Industrial Stocks
- The Complete List of Dividend-Paying Utility Stocks
- The Complete List of Dividend-Paying Materials Stocks
- The Complete List of Dividend-Paying Technology Stocks