Should you buy the five highest paying stocks in the S&P 500?

Dividend stocks are always popular with investors. Who doesn’t love getting a quarterly check on their investments? And in volatile markets like the current one, a dividend is even more valuable because it gives investors a return on their investment, and sometimes it’s an indicator of a stock’s defense — its ability to weather a recession and continue to pay dividends.

If you are looking for dividend stocks, Standard & Poor’s 500 It is always a good place to start. Keep reading to see all five highest return Dividends on the broad market index and if bought today.

A person holding several denominations of banknotes.

Image source: Getty Images.

1. Pioneer Natural Resources (11.3% dividend)

Pioneer Natural Resources (PXD -0.08%) It currently takes the crown as the S&P 500’s highest-yielding stock.

The oil and gas exploration and production (E&P) company has benefited from higher oil prices, but investors looking to buy the stock because of its high dividend yield should be aware of its dividend policy.

Its latest policy has been to pay a variable dividend, which means it fluctuates every quarter. The policy is to pay 75% of the prior quarter’s free cash flow in addition to what you consider the basic dividend. The company’s most recent quarterly earnings was $5.71 per share.

Since Pioneer’s earnings are variable, investors should not buy the stock if they are counting on the yield. Oil prices are down significantly from last year’s peak, and could drop further in 2023, especially if the global economy slips into recession.

2. Coterra Energy (10.1% dividend)

Another oil and gas company comes in at number two on the list. this Coterra Energy (CTRA -1.14%)which mainly focused on fracking gas in the Marcellus shale in Pennsylvania.

Like Pioneer, Coterra has a variable dividend policy, paying out $0.15 per share of underlying dividend each quarter, with the rest dependent on earnings, saying it will return 50% of the earnings to shareholders as a dividend and the other 24% as a share buyback. Last quarter, that gave investors a quarterly dividend of $0.68 per share.

The company’s primary focus on gas reduces exposure to a potential downturn in oil prices, but the market seems to believe earnings could fall. Stocks are trading with a price-to-earnings ratio of less than 5, which is a low number that indicates that investors are anticipating lower prices. However, this gives management an opportunity to buy back shares on the cheap.

Although dividends will fluctuate, the combination of a double-digit yield and low valuation is attractive if energy prices remain high.

3. Vornado Realty Trust (9.7% dividend yield)

shift gears, Vornado Realty Trust (VNO 1.22%) It is a REIT based in New York City and primarily focused on offices. Like much of the office real estate sector, Vornado has been grappling with headwinds across the industry that include rising vacancies and falling rents.

Vornado’s net operating income was mostly flat in its most recent earnings report, and funds from operations were down slightly.

REITs are required by law to pay out at least 90% of their earnings as dividends in order to retain their preferred tax status, and Vornado’s yield of 9.7% is impressive, but management has warned that dividends will need to be paid. to be “legal”.

The good news is that Vornado will likely only make a moderate dividend cut since it has to pay most of its earnings in a dividend, and headwinds in the office sector are likely to continue, keeping the share price lower. However, investors should be prepared for lower payments.

4. Devon Energy (8.2% dividend)

Devon Energy (DVN -0.69%) It is another oil and gas exploration and production company, which indicates that the energy sector is the main source of dividends at the moment.

You probably won’t be surprised to learn that Devon has a similar dividend policy to the other energy stocks on this list, with a base dividend plus variable payout depending on its earnings.

The company’s most recent quarterly dividend was $1.35 a share, but that’s actually a decrease from its previous payout, a reflection of lower oil prices.

Devon shares have risen over the past two years, but the stock could give back some of those gains if oil prices continue to drop.

5. Altria (8.2% dividend yield)

Altria Group (MO 0.48%) Rounded out list of stocks with the highest dividend yields Standard & Poor’s 500. The local Marlboro maker has been a dividend powerhouse for two generations, having raised its dividend 57 times in the last 53 years.

These days, with the tobacco industry in decline, Altria is trying to get away from it. But its investments in electronic cigarettes and cannabis company Juul Kronos GroupIn addition to introducing the Iqos heat and non-combustible product.

However, Altria remains a strong earnings driver because the company is highly profitable and has been able to increase revenue by raising prices to overcome lower volumes. It targets paying 80% of its dividend as a dividend, and raised its quarterly payment by 4% last August, to $0.94 per share. The tobacco sector also offers the advantage of being relatively recession-proof.

Since Altria doesn’t rely on volatile energy prices and can fund its dividend at the current level, it’s the only one of these five stocks whose dividend actually appears safe.

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