The 5 Highest-Paying Dividend Stocks – Too good to be true?
By: Ned Piplovic,
The highest-paying dividend stocks would be much easier to select if investors could just search for and buy the top handful of companies from a credible list that clearly identified them.
Investors certainly can enhance their total returns by purchasing stocks that pay high dividends, especially in equities that also are rising in share price. However, investing in securities based solely on a single factor, such as a high dividend payout, could be too good to be true and may lead to significant losses.
Therefore, investors should consider additional factors to ensure that the highest-paying dividend stocks also have additional investment-worthy characteristics.
A company’s dividend yield is a good first step in the search for the highest-paying dividend stocks. A dividend yield is simply the ratio of the annual dividend payout per share and the company’s current share price. However, a high or even rising dividend ratio might not be a positive indicator that the security is a contender. A sharply falling share price will result in fast-rising dividend yield, which is not a good sign.
A better indicator is a total return over the past 12 months, as well as the past several years. The total return measures the total increase of the combined share price growth and all dividend distributions paid out over a particular period above the starting share price for a particular period.
Another important indicator that investors may want to check is a stock’s dividend payout ratio, which indicates what share of a company’s net earnings is distributed as dividends. A low dividend payout ratio – no more than 50% – indicates that a company’s net earnings are sufficient to cover the dividend payouts, at least over the near term.
To illustrate that stocks with high dividend yields might not be automatically the highest-paying dividend stocks worthy of investor consideration, I used the Dividend Screener available at DividendInvestor.com, to reveal the five large-cap companies – at least $10 billion – with the highest dividend yields. However, while some have the supporting attributes to qualify as potentially good investment choices, other stocks, indeed, are too good to be true.
The following five stocks offer investment ideas worthy of weighing.
The 5 Highest-Paying Dividend Stocks: #5
Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA)
When this stock first made the list, its 9.3% dividend yield seemed very promising. Unfortunately, the company has cut its annual dividend distribution five times in the past seven years and currently yields 3.8%. Furthermore, the company’s share price has been declining for more than three years. With both of these indicators declining, the company delivered to its shareholders a total loss of more than 4% just over the past 12 months. The company has temporarily suspended its dividend mid-2020 and has yet to reinstate it, indicating a lack of overall financial health.
The 5 Highest-Paying Dividend Stocks: #4
Icahn Enterprises LP (NYSE:IEP)
Icahn Enterprises maintains a high dividend yield of 14.3%, and unlike the previous entry on our list, its share price has grown as well. With capital appreciation of 1.9% in the trailing 12-month period, the company has generated total returns of over 16%. Its dividend has stayed at a level $2.00 per quarter throughout 2019 and 2020, and otherwise has been steadily increasing since 2012. IEP has preformed well in the long-term as well, with returns of 39.2% in the last three years and 91.7% in the last five years, nearly doubling investors’ money.
The 5 Highest-Paying Dividend Stocks: #3
Energy Transfer Partners LP (NYSE:ETP-E)
Energy Transfer Partners LP’s 8.6% dividend yield is approaching double-digit territory. Additionally, with over 15 annual dividend hikes in the last 20 years, the company has grown steadily and consistently. Over those years, the company managed to increase its total annual dividend nearly 10-fold and achieved an average growth rate of more than 15% per year. Also, ETP-E’s current yield is 41% higher than the company’s own average yield over the past five years. While the company’s five-year total return is virtually non-existent, ETP is taking a loss of only 4.3% in the trailing 12 months.
The 5 Highest-Paying Dividend Stocks: #2
CenturyLink, Inc. (NYSE:LUMN)
CenturyLink has had a remarkably strong start to the year and currently pays a dividend yielding 8.1%. This $0.25 quarterly payment is a decrease from its regular payment in 2018 of $0.54 per quarter, which was held level since 2012, where the dividend distribution was even higher at $0.73 per quarter. Its current annual payout is $1.00, and the company has suffered minor losses in the trailing 12-month period, losing 2% of its share value. CenturyLink, or Lumen Technologies, has had a very strong start to 2021, however, with YTD returns of 27%.
The 5 Highest-Paying Dividend Stocks: #1
Annaly Capital Management, Inc. (NYSE:NLY)
Annaly Capital has been slowly reducing its dividend over the last 10 years, currently paying a quarterly distribution of $0.22 that annualizes to $0.88. It yields 10.8% — a meaningful amount, especially considering the losses in NLY’s share price for the 12 months prior were minor. The company lost 5% of its share value in the last year, approximately 4% of which happened in January 2021. Investors still turned a profit due to its high dividend yield, causing total returns to exceed 5%. The company has preformed far better over the long-term, having grown 10.8% in the last three years and 51.9% in the last five.
5 Highest-Paying Dividend Stocks: Conclusion
The process to select highest-paying dividend stocks is not simple. However, it is also not overly complex, nor does it require professional assistance. Investors can acquire the knowledge and a few simple tools to analyze equities and determine which investments are most likely to yield outsized returns over the near term.
Short-term investors, day-traders, flash traders and other institutional investors must engage in complex market analysis because the type of investing that they perform allows minimal tolerance for error. However, individual investors whose investment goals involve longer term horizons can perform their analyses by assessing just a few simple indicators, such as total returns, dividend payout ratios, share price and share-price trends to select the highest paying dividend stocks that best fit a person’s own investment strategy.
Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.
In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.