And whenever a stock falls massively, it can be given some second looks, especially if the underlying company’s present dividend yields are solid and sustainable.
Consider what recently occurred with VF Corp. (VFC).
VFC is a clothing and footwear corporation best known for its brands Vans, The North Face, Timberland, and Supreme.
It is also a member of the S&P 500 Dividend Aristocrats, which is an index of S&P 500 businesses that have increased their dividends for at least 25 years.
This group is usually regarded as the group of the greatest dividend stocks on Wall Street.
But is it Sustainable
For the past 50 years, VF Corp. has increased its dividend every year but that streak, as well as the company’s participation in the Dividend Aristocrats, is now in jeopardy.
VFC lowered its quarterly dividend by 41% to 30 cents per share, down from 51 cents.
Prior to the decrease, VFC stock had one of the highest dividend yields in the S&P 500, at 7.1%.
The dividend yield on VFC stock is projected to be 4.2% at the current quarterly rate of 30 cents per share.
By today’s market standards, VFC’s dividend yield of 4.2% remains exceptionally appealing.
However, the previous yield was so great that it was clearly unsustainable.
After all, VFC’s dividend yield surpassed 7% in the first place because the company lost more than half its value in the previous year.
So, yes, equities with the greatest dividend yields can occasionally be fool’s gold.
With that caution out of the way, we’re delighted to announce that the stocks in the S&P 500 with the highest dividend yields look promising in terms of distributions.
From oil and gas businesses flush with cash as a result of high oil prices to a tobacco company and a telecommunications giant, the following stocks have the highest dividend yields in the S&P 500 – and appear to have the resources to maintain them.
Verizon Communications, Inc.
Verizon Communications (VZ) is well-known for paying out consistent and large dividends.
As the sole telco in the Dow Jones Industrial Average, attracts a lot of attention from institutional investors searching for equity income.
True, VZ has one of the highest dividend yields in the benchmark index, owing in part to a 24% drop in the last 52 weeks.
However, at 6.4%, VZ’s dividend yield is not out of step with previous levels.
The three-year average dividend yield on the stock is about 5%.
Long-term investors looking for the greatest dividend growth stocks will appreciate the fact that this telco is also a consistent dividend grower.
VZ has increased its payment every year for the past 18 years. And the dividend hikes should continue.
What evidence do we have? Verizon paid out $10.8 billion in dividends during the fiscal year that ended December 31, 2022, while still generating $6.2 billion in free cash flow (the cash remaining after expenses, capital expenditures, and financial commitments are met).
However, wall Street is divided on VZ stock’s chances of outperforming the market over the next 12 to 18 months.
According to S&P Global Market Intelligence, the consensus advice among analysts is to hold.
The Altria Group
The tobacco industry in the United States is not experiencing considerable expansion.
As a result, Altria Group (MO), whose brands include Marlboro cigarettes and Copenhagen dipping tobacco, must satisfy shareholders with significant and consistent dividends.
When it comes to Altria’s standing as a defensive stock, dividends are only part of the tale.
When circumstances are rough, sales of its addictive items tend to hold up well.
MO stock also trades with substantially lower volatility than the larger market.
MO is a wonderful location to hide in a terrible market because of these features, as well as a dividend yield of more than 8% and 13 consecutive years of dividend increases.
Indeed, MO’s total return (price appreciation + dividends) over the last 52 weeks is 0%.
True, investors did not profit, but they also did not lose money.
In comparison, the S&P 500 returned -5.6% over the same time period.
Analysts do not expect Altria to continue outperforming the market in the next 12 to 18 months. Their unanimous consensus is to hold.
Devon Power
Devon Energy (DVN) is the first of three independent oil and gas businesses to make the list of S&P 500 stocks with the highest dividend yields.
Because of persistently high global oil prices, the energy sector in general is awash with free cash flow.
As a result, it has lavished that cash on shareholders via dividends and share buybacks.
Devon earned $1.3 billion in free cash flow for the fiscal year that ended Sept. 30 while paying out $404 million in dividends.
Remember that the energy industry is punishingly cyclical.
The current bull market in energy stocks will not last forever.
The dividend yield for DVN has averaged 2.8% over the last five years.
Regression to the mean is a real phenomenon.
For the time being, Wall Street seems optimistic about DVN’s prospects.
The stock is up almost a fifth over the last year, compared to the S&P 500’s loss of more than 8%, and analysts expect more market-beating performance in the future.
With a consensus recommendation of Buy and an average target price of $75.44, DVN stock has an expected upside of nearly 24% over the next year.
When the dividend yield is included in, the anticipated total return is roughly 33%.
Coterra Power
Coterra Energy (CTRA) shares have outperformed the wider market by about 20 percentage points over the last 52 weeks, but the Street expects shares will only match the broader market’s performance over the next year.
Five analysts covering the independent oil and gas company tracked by S&P Global Market Intelligence grade it as a Strong Buy, three as a Buy, 18 as a Hold, and two as a Strong Sell.
This results in a consensus recommendation of Hold.
However, the average price target on the Street paints a very different narrative.
Analysts see a 25% gain in the next 12 months for CTRA at $30.48. When the dividend yield is included in, the anticipated total return exceeds 35%.
And CTRA appears to have the financial flow to continue paying dividends.
Over the fiscal year ending September 30, the company generated $3.1 billion in free cash flow. This was after distributing $2.1 billion in dividends.
Pioneer Natural Resources
No stock in the S&P 500 has a higher yield than Pioneer Natural Resources (PXD).
Shares have been nearly steady in price over the last 52 weeks, but Wall Street believes they will outperform in 2023.
S&P Global Market Intelligence tracks 34 analysts covering PXD, and nine recommend it as a Strong Buy, eight as a Buy, 12 as a Hold, three as a Sell, and two as a Strong Sell.
That amounts to a consensus recommendation of Buy, albeit with mixed feelings.
Regardless, analysts’ average target price of $272.43 implies a 22% price increase for PXD over the next 12 months.
As previously said, the oil and gas industry is cyclical. PXD’s dividend yields 6.2% on average over the last five years. That is fairly high, but significantly lower than current levels.
Shareholders can thank the company’s cash infusions.
For the fiscal year ending September 30, PXD earned $3.6 billion in free cash flow and this was after the corporation paid out $4.7 billion in dividends to stockholders.
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