These companies pay the highest dividends in the S&P 500.
The S&P 500 is the most holistic of the three mainstream U.S. stock market indices and is supposed to represent a broad, inclusive array of the largest domestic companies. With every business worth billions of dollars and all but one stock trading hundreds of thousands of shares per day, these are well-established, impressive businesses. Many use their cash flow to pay back investors through dividends. Instead of looking at the highest dividend by dollar amount, the dividend yield is what counts: the annual dividend divided by the current share price. Here’s a look at the seven highest dividend-paying stocks in the S&P 500, in ascending order, ranked by dividend yield.
Iron Mountain (ticker: IRM)
Technically considered a real estate investment trust, or REIT, Iron Mountain is a longtime purveyor of corporate data and information management services. The go-to company for physical document storage — think sensitive records and document destruction — the company has increasingly pivoted to offer digitization services, data center and cloud storage solutions in the digital age. As a REIT, the business is required to pay out at least 90% of taxable income to unit-holders in exchange for the ability to legally forego corporate taxes. The company expects adjusted funds from operations, or AFFO, a key profitability metric for REITs, to grow between 6% and 11% on a per-share basis in 2021. The company also trades at around 13 times 2020 AFFO, an entirely reasonable multiple.
Current yield: 6.22%
Kinder Morgan (KMI)
As the second-largest publicly traded “midstream” oil and gas company in the U.S., the Houston-based Kinder Morgan is an established energy gathering, storage and transportation company. It owns and operates about 83,000 miles of pipelines crisscrossing the country. The company raised its dividend payout by 5% even in the challenging environment of 2020 and expects to raise it another 3% in 2021. Last quarter, Kinder Morgan comfortably generated enough distributable cash flow to cover its hefty dividend, with $652 million to spare. In addition, about 15% of the company is owned by its own management, revealing a strong insider belief in its future.
Current yield: 6.3%
AT&T has long been one of the highest-dividend-paying stocks in the S&P 500, with shares of the regulated telecom and media giant rewarding investors with regular dividend income rather than plowing its cash back into growth. Generally speaking, that means stability for the wireless giant and leading player in the 5G revolution. Looking ahead, shares seem reasonably priced at less than 10 times forward earnings, and the company’s streaming service, HBO Max, offers some modest growth potential. The acquisition of Time Warner also gives AT&T a compelling degree of vertical integration, combining its status as a cable provider with the ownership of a number of popular channels, including CNN, TNT, Comedy Central and MTV, among many others.
Current yield: 6.91%
Williams Cos. (WMB)
Williams Cos. is a large-cap pipeline company based in Tulsa, Oklahoma. Its bread and butter is the transportation of oil and natural gas — a service that will be in demand as long as fossil fuels are consumed. With more than 30,000 miles of pipelines, WMB’s infrastructure is almost impossible for rivals to replicate; in that way, the company resembles the sustainable competitive advantage enjoyed by railroad companies. Regulated rates and long-term contracts mean WMB has some of the same cash flow predictability that utilities enjoy, and although the company has a fair amount of debt on its books, it should be able to pay some of that down with what analysts expect to be rising profits as the energy sector recovers.
Current yield: 6.95%
Altria Group (MO)
Like a number of other stocks on this list, tobacco behemoth Altria Group doesn’t have the trailing earnings to justify its current dividend, which works out to $3.44 per share annually, despite trailing earnings of just $2.41 per share. Although not ideal, that’s OK, since 2020 was a tough year for much of corporate America and because analysts expect the future to be brighter. Wall Street expects earnings per share (EPS) to hit $4.88 next year. One thing that should be of concern: the Biden administration is reportedly considering banning cigarettes with addictive levels of nicotine, as well as banning menthol. Understandably, this caused tobacco stocks like Altria to plunge, contributing to a corresponding surge in its dividend yield. If Marlboro-maker Altria can only sell cigarettes that aren’t addictive, much of its customer base would likely erode.
Current yield: 7.22%
Like Williams Cos., Oneok is a midstream oil and gas company, meaning it engages in the storage and transportation of oil and natural gas, a vital service for the energy sector and the broader economy. Oneok also gathers, treats and markets natural gas liquids, and the company has more than 25,000 miles of pipelines in the U.S. for gathering and transmission. Although pipelines’ steady cash flows make these companies natural members of high dividend lists, Oneok’s debt load and earnings profile raise concerns about the sustainability of its payout. The company’s dividend payout ratio, or the percentage of earnings required to pay the dividend, sits at an unsustainable 273%, and even when earnings normalize in 2022, analysts see the current annual dividend of $3.74 representing about 114% of 2022 earnings.
Current yield: 7.24%
Lumen Technologies (LUMN)
The single largest dividend in the S&P 500 is paid by Lumen Technologies, the telecom company formerly known as CenturyLink. Primarily an internet service provider and IT company, the company serves about 4.5 million broadband subscribers. Unfortunately, analysts don’t expect much growth from the middling telecom and actually expect revenue to contract by more than 3% in 2021, and more than 4% in 2022. Although its dividend looks sustainable for now, there are few bullish catalysts on the horizon for LUMN, which looks to remain an underdog in an industry dominated by larger regional and nationwide corporate titans. Unfortunately, the business has been trending the wrong way for years, and barring an acquisition at the hands of a larger rival, it’s likely the cost of a high dividend yield will be inauspicious prospects for the stock price itself.
Current yield: 7.77%
The seven highest dividend yields in the S&P 500:
— Iron Mountain (IRM)
— Kinder Morgan (KMI)
— AT&T (T)
— Williams Cos. (WMB)
— Altria Group (MO)
— Oneok (OKE)
— Lumen Technologies (LUMN)
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Update 04/21/21: This story was published at an earlier date and has been updated with new information.