One of the biggest trends on Wall Street looking forward seems to be the expectation of lower interest rates in the fourth quarter and into 2025. This could have dramatic implications for dividend stock investors and the market as a whole.
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Just look at the rate-sensitive real estate sector, as measured by the $33 billion Vanguard Real Estate ETF (ticker: VNQ), for proof. This is the most popular ETF dedicated to the sector and has really been on a tear lately; VNQ is up 18% since June 1, roughly tripling the S&P 500 returns in the same period, with some smaller real estate investment trusts, or REITs, surging even more dramatically.
In such a “risk-on” environment, a group of traditional stocks that provide income potential or a long-term store of value have been left behind. As a result, the highest dividend-paying stocks in the S&P 500 may be reshaped as sectors move in and out of favor. But as of right now, the following nine stocks offer the biggest yield of any in the S&P 500:
| S&P 500 Dividend Stock | Trailing Dividend Yield* |
| Kinder Morgan Inc. (KMI) | 5.4% |
| Dow Inc. (DOW) | 5.5% |
| Pfizer Inc. (PFE) | 5.6% |
| Ford Motor Co. (F) | 5.6% |
| LyondellBasell Industries NV (LYB) | 5.7% |
| Verizon Communications Inc. (VZ) | 6.0% |
| Franklin Resources Inc. (BEN) | 6.2% |
| Altria Group Inc. (MO) | 7.7% |
| Walgreens Boots Alliance Inc. (WBA) | 11.1% |
*As of Sept. 16 close.
Kinder Morgan Inc. (KMI)
Trailing dividend yield: 5.4%
Kinder Morgan is a “midstream” oil-and-gas firm that operates roughly 83,000 miles of pipelines and 140 terminals across the U.S. This is a much more reliable business model than explorers looking for new oil or gas, as the “upstream” drillers always need the pipelines to transport reserves and “downstream” companies like refiners and wholesalers need a constant flow of product to their facilities.
There’s less potential for the big margins you’d see at either end of that food chain, but in the middle segment there’s more reliability — which should be appealing to most income investors. The firm’s dividend was bumped up to 28.75 cents quarterly, good for $1.15 a year and an annualized yield that makes it one of the top dividend stocks in the S&P 500.
Dow Inc. (DOW)
Trailing dividend yield: 5.5%
Not to be confused with the industrial average that competes with the S&P 500, Dow Inc. provides packaging, specialty plastics, performance coatings, and other chemicals and materials that are necessary inputs for a host of industries. Like LyondellBasell Industries, Dow is tied closely to broader economic activity and inflationary pressures. Though the stock market has been booming lately, Dow’s performance has been muted as a result of these trends and shares are down about 8% year to date as a result. But as a leader in the specialty chemicals marketplace, the firm has a solid roster of customers and scale that gives it a bit of certainty behind its generous $2.80 annual dividend.
Pfizer Inc. (PFE)
Trailing dividend yield: 5.6%
A few years back, Pfizer was Wall Street’s darling thanks to its early-to-market COVID-19 vaccine and the amazing increase in its share price that followed. But now, the shoe is on the other foot after troubles with a recent flu-COVID combo vaccine developed in partnership with BioNTech SE (BNTX). The drug missed a main goal in its phase 3 trial at the worst time — which is not only causing concerns about near-term revenue, but also about overall operations after it also missed out on other opportunities like the obesity drug windfalls reaped by competitors.
The dividend certainly isn’t going anywhere, as the drugmaker’s dividend is only about two-thirds of total earnings per share. That said, the challenges with the product pipeline have raised questions lately that have caused the stock to put up single-digit year-to-date returns while the S&P 500 as a whole has charged significantly higher.
Ford Motor Co. (F)
Trailing dividend yield: 5.6%
Ford is one of the many stocks on this list of the best dividend stocks in the S&P 500 that have seen shares slump lately. Its struggles to enter the electric vehicle market are pretty well known, but the recent news that it was canceling its EV SUV plans — and writing off $1.9 billion to do it — went over like a lead balloon in August.
What’s more, continued troubles in the key marketplace of China hint that this once-dominant automaker may be on its back foot as the industry begins to step forward into a new era for car sales. Right now, Ford is paying 60 cents in annual dividends on projected earnings of more than $1.90 a share for both this fiscal year and fiscal year 2025. That’s very sustainable, but recent earnings misses as well as a need to rethink its overall strategy have investors leery of this stock for good reason.
Shares are off about 13% this year while the S&P is up nicely, but more concerning is the fact that those losses are pretty recent, with shares plummeting from around $14.50 in late July to a low of under $10 in August. The stock has clawed back some of those losses, but the volatility still gives investors cause for concern.
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LyondellBasell Industries NV (LYB)
Trailing dividend yield: 5.7%
LYB is a global chemical company that specializes in polyolefins, the family of ubiquitous plastics that include polypropylene and polyethylene, as well as other polymers and compounds. These products and their petrochemicals family have been under pressure lately as inflationary pressures over the past few years have eaten into earnings, and as a result the stock is down modestly since Jan. 1 despite an otherwise rising market.
But the good news going forward is that inflation readings have been increasingly more encouraging. And as one of the leading specialty chemicals firms in the world, standing toe-to-toe with companies such as DuPont de Nemours Inc. (DD) and Air Products & Chemicals Inc. (APD), it has the scale to offer stability — as well as a generous dividend that is only about 60% of forecasted earnings. LYB’s income stream is likely to be reliable regardless of any short-term ups or downs in demand.
Verizon Communications Inc. (VZ)
Trailing dividend yield: 6%
Telecommunications leader Verizon has been neck-and-neck with the broader S&P 500 since Jan. 1 when it comes to share-price appreciation. Part of the reason is, like peer AT&T Inc. (T), its debt-heavy operations could benefit from a lower-interest-rate environment — if the Fed sticks to its previously stated plans, of course. Verizon is the largest U.S. wireless carrier by market share, with over 37% of wireless subscriptions and about 149 million customers, so it has the “wide moat” and staying power that dividend investors tend to look for. With a yield that is more than four times the S&P’s, along with recent share-price momentum, VZ could be a stock to watch.
Franklin Resources Inc. (BEN)
Trailing dividend yield: 6.2%
Operating under the global brand Franklin Templeton Investments, BEN is a money manager that isn’t having a great year — for its clients or for investors in its stock. Shares are down about 30% so far since Jan. 1, which coincides pretty closely with the finalization of its deal to acquire rival asset manager Putnam. The total assets under management at the firm definitely got a bump, and it currently boasts more than $1 trillion in assets, but the fact remains that Franklin Templeton is hovering around No. 20 in size for the largest asset managers. That makes it neither too small to be an easy target nor large enough to stand toe-to-toe with firms like BlackRock Inc. (BLK) or Morgan Stanley (MS).
More recently, the U.S. Securities and Exchange Commission has turned an eye toward BEN and its co-chief investment officer thanks to alleged improprieties at a $2 billion fund. Circumstances definitely have spooked investors, but for the time being, the 29-cent dividend is still intact and providing a generous yield after recent share-price declines.
Altria Group Inc. (MO)
Trailing dividend yield: 7.7%
Regularly among the highest-paying dividend stocks in the S&P 500, Altria has actually risen to the rank of the best stocks in the index for share appreciation, too. Since Jan. 1, the tobacco giant has seen shares surge more than 30% even as the broader S&P has only increased about 18% in the same period. This consumer staples leader remains a go-to name for income investors thanks to its iconic Marlboro cigarettes, Black & Mild pipe and cigar products, and smokeless tobacco products such as Copenhagen and Skoal, which are increasingly supplemented by new brands like MO’s NJOY vaping line. With an amazing track record of 59 dividend increases across 55 years, most recently with a bump to $4.08 per share in August, Altria provides regular paydays that investors have learned to depend on.
Walgreens Boots Alliance Inc. (WBA)
Trailing dividend yield: 11.1%
Walgreens has been the leader among S&P 500 dividend stocks for much of this year, but that’s not for the best of reasons. Shares have crashed more than 60% year to date for a host of reasons. First, chronic challenges on the insurance reimbursement side are pressuring its core drug-filling revenue. It also is suffering soft sales for non-health care products at its stores. More recently, Walgreens refinanced debt to deal with a cash crunch at a much higher interest rate, even as it also divested a big stake in drug distributor Cencora Inc. (COR). These events to raise capital are never a good sign, as they hint at a general cash crunch. That’s bad for any stock, but particularly for dividend stocks, as the income stream is a logical target for any future cuts.
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9 Highest Dividend-Paying Stocks in the S&P 500 originally appeared on usnews.com
Update 09/17/24: This story was published at an earlier date and has been updated with new information.
