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10 Highest Dividend Yielding Stocks

Getty Stacks Of Cash
Getty Stacks Of Cash

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One sound long-term investing strategy is to buy stocks that offer up high dividend yields.This strategy has become particularly enticing in today's low interest rate environment, since it offers investors a chance to generate a lot of income from their portfolio. However, just because a stock offers up a high yield doesn't make it an automatic buy, especially because sky-high yields are often accompanied by sky-high risks. Knowing that, lets take a look at the 10 highest yielding stocks from the S&P 500 to see if any of them are worth buying today. For simplicity's sake, we'll exclude all real estate investments trusts, or REITs , from this article since they play by their own set of rules .

Company Ticker Dividend Yield
Frontier Communications (NASDAQ: FTR) 12.3%
CenturyLink (NYSE: CTL) 9%
Seagate Technology (NASDAQ: STX) 6.4%
Mattel (NASDAQ: MAT) 5.4%
Staples (NASDAQ: SPLS) 5.2%
Ford (NYSE: F) 4.8%
Pitney Bowes (NYSE: PBI) 4.8%
Entergy Corp. (NYSE: ETR) 4.8%
FirstEnergy (NYSE: FE) 4.6%
AT&T (NYSE: T) 4.6%

Data sources: Finviz

Is the payout sustainable?

Most dividend investors know that a key metric for any dividend stock is the payout ratio, which is the percentage of a company's earnings that it uses to pay dividends. In general, a payout ratio over 85% is worrisome as it hints that the dividend could be on the chopping block if the company's earnings ever take a hit. A payout ratio greater than 100% means that the company is paying out more in dividends than it generates in net income.

Here's a look at the current payout ratio for each of these companies.

Company Payout ratio
Frontier Communications N/A
CenturyLink 127%
Seagate Technology 200%
Mattel 144%
Staples 54%
Ford 33%
Pitney Bowes 56%
Entergy Corp. 48%
FirstEnergy 51%
AT&T 82%

Data sources: Yahoo! finance

Right away we can see that this metric removes several companies from contention. Frontier Communications isn't expected to be profitable this year, which is why it doesn't even have a payout ratio. That makes it an easy pass in my book.

CenturyLink, Seagate Technology, and Mattel all boast payout ratios well over 100%, which means their dividend payments currently exceeds their net income. That lets us remove them from consideration, too.

Just like that, our list of 10 has been cut down do 6.

Is the business growing?

The remaining companies all appear to offer up stable dividend payments, but even dividend investors also need to think about growth. After all, if a company's profits are stagnant or declining, its dividend isn't likely to be increased over time, making it a far less attractive investment.

Let's take a look at the projected profit growth rates of our remaining list of companies to see what analysts believe is going to happen over the next five years.

Company Estimated 5 year growth rates
Staples 1.3%
Ford 1.5%
Pitney Bowes 4%
Entergy Corp. (8.2%)
FirstEnergy (5.1%)
AT&T 8.4%

Data sources: finviz.

While Entergy and FirstEnergy are profitable and paying out solid dividends, Wall Street believes that both of these companies are about to see their profits head in the wrong direction. Those numbers tell me that we should look elsewhere for investment opportunities.

Staples is another company that should give investors pause. The company's business model is under attack from e-commerce companies like Amazon.com , which is a big reason why same store sales numbers have been in decline. To fight back, the company is closing down itsunder-performing stores and investing heavily in Staples.com, but those moves are going to take their toll on the company's profitability.

The markets also appear to be quite concerned with Ford's long-term prospects. That's likely owing to worries about peaking auto sales in North America -- a theory which, if true,suggest that the company's sales and profit margins are currently unsustainable. In addition, autonomous vehicles and ride-sharing services are both long-term opportunities and threats to the auto industry. Given those realities, it's not hard to understand why analysts are being cautions with their growth estimates.

For these reasons, conservative investors might want to consider removing both Ford and Staples from contention, too.

And then there were two

Pitney Bowes sailed through our first two tests with ease, but that doesn't mean that this is a risk-free stock. In fact, the markets have been punishing shareholders for more than two years as the company has been struggling with growth. Last quarter the company's earnings fell by more than 22% due to lower-than-expected license revenue, which is one of the company's most lucrative business lines. That caused the company to reign in its full year profit forecast. That's a troubling development that could suggest that analysts are over estimating this company's growth prospects.

AT&T, on the other hand, has a lot going for it. The company's wireless division continues to be a cash cow that is supporting by very low churn rates. AT&T also offers investors the potential for growth thanks to its recent purchase of DirecTV. Its pending merger with Time Warner could also be a big win for shareholders if it goes through. . Even if the deal falls through, AT&T should still be able to crank out consistent earnings growth, allowing it to retain its status as a dividend aristocrat .

So there you have it. This simple list of criteria shows that income investors would be wise to add AT&T to their watch list and largely ignore the rest.

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Brian Feroldi owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com and Ford. The Motley Fool recommends Time Warner. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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