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Last quarter, the S&P 500 set a record for the amount of dividends paid – again. This marks the fourth straight quarter of record dividend payments by the S&P 500.
What’s more is that the average S&P 500 dividend yield, which stands at 1.9%, recently passed the yield for the 10-year U.S. Treasury, which is 1.85%.
Dividends are all the rage.
And as I’ve mentioned before, 84% of the stocks in the S&P 500 are now paying a dividend.
But how long can this continue? Many S&P 500 dividend stocks still have cash hoards and solid balance sheets. Yet there appears to be some cracks.
Commodities and energy stocks have been cutting dividends of late. This led to the first quarter having more dividend cuts than any other quarter since 2009.
And not all companies are rewarding shareholders with dividend increases. Of the 421 S&P 500 companies paying a dividend, only 341 increased their dividends over the last year.
But that’s not to say that investors can’t find great dividend stocks. FactSet still estimates that the collective dividend per share for the S&P 500 will grow by over 8% this year.
With that, today’s theme is the highest yielding stocks in the S&P 500. It just so happens that these stocks have a track record of consistently rewarding shareholders with dividend increases.
No. 1 S&P 500 Dividend Stock: Philip Morris International (NYSE: PM)
Paying a 5.2% dividend yield, Philip Morris International is consistently one of the top yielding stocks in the S&P 500. This comes as PMI has upped its dividend every year since it spun off from Altria (NYSE: MO) in 2008. In fact, its current dividend yield is one of the highest we’ve seen since the spinoff.
Granted, there’s concern for investors over declining cigarette consumption worldwide. But PMI is holding up nicely. As the largest international tobacco company, PMI has pricing power. It’s also seeing growth from increased e-cigarette sales. Then there’s the fact that cigarette consumption in emerging markets is still growing.
Along those lines, Philip Morris International plans to launch a number of what it calls “Next Gen” products this year. These are focused on consumers worried about the risks related to tobacco products, and should expand its potential customer base.
No. 2 S&P 500 Dividend Stock: Iron Mountain (NYSE: IRM)
Iron Mountain is in the records management and data protection business. Basically, it stores records like paper documents and media. It also offers information destruction services and recovery services.
It serves a variety of companies across nearly every industry (such as financial services, health care, etc.). It operates in more than 35 countries.
But the real beauty of Iron Mountain is its steady recurring revenues. The company generates the majority of its revenues from storage rental fees that companies pay to store their records.
Iron Mountain got approval last year from the IRS to convert to a real estate investment trust (REIT), because of its steel racking structures, which are considered real estate. That’s a big positive for income seeking investors, since Iron Mountain will now be paying out at least 90% of its taxable income via dividends.
Its dividend yield is up to 5.1%, and it has upped its annual dividend payment for five straight years.
No. 3 S&P 500 Dividend Stock: CenterPoint Energy (NYSE: CNP)
CenterPoint Energy operates in the unsexy, but steady, dividend paying utility industry. And this steady business allows the company to pay a 4.8% dividend yield. It has upped its annual dividend for nine straight years.
As far as its business, it owns electric transmission and distribution facilities, as well as natural gas distribution facilities. Its primary market is along the Gulf Coast of Texas, mainly around Houston. Its natural gas distribution systems operate across six states.
But despite the perceived low growth of utilities, CenterPoint has been steadily adding to its customer count thanks to economic development in its core markets.
Ultimately, it’s not always the high-profile dividends that are the best choice. The three dividend payers above are the highest yielding stocks in the S&P 500, but still remain overlooked.
At a time when there are so many investment choices, and with interest rates expected to move higher in the near future, it may pay to simply stick to the highest yielders.
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