The S&P's Top Dividends
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Various divided strategies exist ranging from the somewhat basic dividend capture system to the more complicated fundamental analysis methods to determine the sustainability of a corporation’s payout structure. Dividend-paying stocks have a long-term trend of outperforming the market when both capital gains and income are factored in. Therefore, long-term investors should consider allocating a sizeable portion of their investments to stocks which are complemented with high yields.
The top 15 S&P dividend paying stocks all yield over 5%, and are heavily, but not exclusively, clustered in areas of telecommunications, cigarettes and, of course, utilities.
Frontier Communications (NASDAQ: FTR) leads the way as the top dividend payer of the S&P index, currently supporting a yield of 15.8%. The large yield partially arose due to the falling price of its stock, as share prices have fallen by over 50% within the last 2 years. Although cash flow has been increasing, thus it is able to support the growing dividend payouts, Frontier Communications has an unreasonably high payout ratio, thus questioning the long-term sustainability of its dividend.
Not surprisingly, Altria Group (NYSE: MO) and Reynolds America are found among the top dividend-paying stock of the index, yielding 5.7% and 5.6% respectively. Altria has increased its dividend 45 times over the last 43 years and its stock price has reflected the ongoing improvement in fundamentals. In addition to providing a stable income stream, Altria’s board of directors recently agreed to another $1 billion share repurchase program.
R.R Donnelley & Sons
Perhaps not as well known to the broad investment public as some of the other top-yielding companies, R.R Donnelley & Sons (NASDAQ: RRD) ranks second on the list with an 8.8% payout. Headquartered in Chicago Illinois, RRD provides clients with media, printing, logistics and business processing services. Despite a 35% share price drop over the last year, R.R Donelly’s board of directors recently declared a 26 cent quarterly dividend.
Several utilities companies are found near the top of the S&P 500, including Pepco Holdings (NYSE: POM), Exelon, FirstEnergy and Integrys Energy Group. Most notably, Pepco, has a very attractive dividend yield of 5.5%. Pepco is reasonably priced with P/E and P/S ratios which do not diverge from the industry averages. Investors in this slow-growing industry should be those who are primarily concerned with a stable income stream rather than having a capital gains focus.
Windstream’s (NASDAQ: WIN) solid 8.3% dividend yield is strongly supported by its cash flow. In its latest quarterly release, Windstream announced that adjusted free cash flow had increased by 72% to $211 million. Although dividends paid on common shares amounted to approximately half of that amount, Windstream increased its capital expenditures by 57%. Management’s focus to invest into the company while giving back to shareholders makes this telecom an attractive investment.
These established companies are unlikely to produce significant capital gains. However, for those seeking income, for whatever purpose, they may be a good place to start.
apinkasovitch has no positions in the stocks mentioned above. The Motley Fool owns shares of Altria Group. 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.