Dividend stocks are companies that pay out a portion of their earnings to a class of shareholders on a regular basis. These companies usually are well-established, with stable earnings and a long track record of distributing some of those earnings back to shareholders. These distributions are known as dividends, and may be paid out in the form of cash or as additional stock. Most dividends are paid out on a quarterly basis, but some are paid out monthly, annually, or even once in the form of a special dividend. While dividend stocks are known for the regularity of their dividend payments, in difficult economic times even those dividends may be cut in order to preserve cash.
One useful measure for investors to gauge the sustainability of a company's dividend payments is the dividend payout ratio. The ratio is a measure of total dividends divided by net income, which tells investors how much of net income is being returned to shareholders in the form of dividends versus how much the company is retaining to invest in further growth. If the ratio exceeds 100% or is negative (meaning net income is negative), this indicates the company may be borrowing to pay dividends. In these two cases, the dividends are at a relatively greater risk of being cut.
Below, we look at the top 5 dividend stocks in the S&P 500 by forward dividend yield, excluding companies with payout ratios that are either negative or in excess of 100%. All data is as of July 30, 2020.
- Forward Dividend Yield: 10.16%
- Payout Ratio: 91.40%
- Price: $9.84
- Market Cap: $10.8 billion
- 1-Year Total Return: -9.0%
CenturyLink is an investment holding company that provides integrated communications services to residential and business customers globally. The company offers services such as local and long-distance voice, broadband, Ethernet, colocation, hosting, data integration, video, network, information technology, and more.
- Forward Dividend Yield: 7.29%
- Payout Ratio: 31.18%
- Price: $36.23
- Market Cap: $6.9 billion
- 1-Year Total Return: -40.2%
Vornado Realty Trust is a real estate investment trust (REIT) that owns office, retail, merchandise mart properties, and other real estate and related investments. Its properties include various building office complexes, including Bank of America Center in San Francisco. Vornado's retail properties include shopping centers, regional malls, and single tenant retail assets. Its other real estate and related investments include marketable securities and mezzanine loans. On July 30, the company announced that it had cut its quarterly dividend by 20% to $0.53, payable on August 21, 2020. Vornado said that the cut was related to the uncertainty resulting from the COVID-19 pandemic, but the decrease was still consistent with its policy of paying out 100% of taxable income.
- Forward Dividend Yield: 7.27%
- Payout Ratio: 93.66%
- Price: $48.71
- Market Cap: $3.6 billion
- 1-Year Total Return: -37.2%
SL Green Realty is a fully integrated and self-administered REIT focused on acquiring and managing commercial properties in Manhattan. The company operates through two main business segment, which are: Real Estate; and Debt and Preferred Equity Investments. The Real Estate segment consists of security, maintenance, utility costs, real estate taxes, and more. The Debt and Preferred Equity Investments segment includes various forms of secured or unsecured financing.
- Forward Dividend Yield: 7.01%
- Payout Ratio: 48.28%
- Price: $38.82
- Market Cap: $5.4 billion
- 1-Year Total Return: -43.1%
Comerica operates as a financial services company. Comerica offers financial products and services, including credit, capital market products, international trade finance, foreign exchange management services, consumer lending and mortgage loan origination. The bank also provides wealth management products and services, including retirement services, investment advisory services, investment banking, and brokerage services.
- Forward Dividend Yield: 6.72%
- Payout Ratio: 55.95%
- Price: $65.48
- Market Cap: $25.8 billion
- 1-Year Total Return: -32.6%
Prudential Financial offers financial services, including life insurance, annuities, mutual funds, and investment management to individuals and institutions. Prudential also offers an array of asset management and advisory services related to public and private fixed income, public equity and real estate, commercial mortgage origination and servicing, and mutual funds.