When the price of a dividend stock climbs, its yield falls. As a result, a rising stock market, such as we've had of late, can make it harder for income investors to find attractive dividend payers. Indeed, the current dividend yield on Standard & Poor's 500-stock index is just 2.1%, down from 2.3% a year ago. For retirees dependent on investment income, a 2.1% yield won't even keep up with inflation in 2017, according to Kiplinger's latest forecast.
True, investors can buy stocks with unusually high yields, but such names typically come with greater risks. A too-good-to-be-true yield can be a red flag about a company's financial health and an indicator that the dividend isn't sustainable. That's why dependable, high-quality stocks with above-average dividend yields are such important components of a retirement portfolio. Here are four great dividend stocks that are paying double the yield of the blue-chip S&P 500 index.
(All prices and other data are as of January 9, 2017. Figures are based on the average of analysts’ forecasts for calendar 2017, as compiled by Zacks Investment Research, unless otherwise noted. Stocks are listed alphabetically.)
- Symbol: T (opens in new tab)
- Share price: $40.80
- Dividend yield: 4.7%
The telecommunications services sector is well-known for dividends, thanks in large part to AT&T. The company has paid uninterrupted dividends since 1984 and has raised its payout annually for more than three decades. AT&T’s yield is the highest in Standard & Poor’s 500-stock index, which has a yield of 2.1%
Although phone service remains AT&T’s core business, the company is moving aggressively into pay-TV and content production with acquisitions such as DirecTV and a pending deal to buy Time Warner (TWX) (opens in new tab), an entertainment giant whose lineup includes CNN, HBO and the Warner Brothers movie studio. Analysts aren’t counting on the deal going through -- at least not without some modifications -- due to antitrust issues. But even without it, AT&T’s profits should still rise by about 5% in 2017, and the company’s strong free cash flow (cash profits, minus the capital expenditures needed to maintain the business) should support its next dividend hike.
- Symbol: F (opens in new tab)
- Share price: $12.63
- Dividend yield: 4.8%
U.S. auto sales set a record in 2016, but the prospect of leaner times ahead has weighed on shares of Ford. The stock slumped 8% in 2016, including dividends. Yet the market is treating Ford, with a price-earnings ratio of just 8, compared with 17 for the S&P 500, as if profits will fall off a cliff. That shouldn’t be the case. Although car sales are forecast to decline in 2017, they are still expected to remain close to record levels.
- Symbol: GM (opens in new tab)
- Share price: $36.01
- Dividend yield: 4.2%
As with Ford, the case for investing in General Motors comes down to generous dividends and a bargain-priced stock. Only about three-dozen stocks in the S&P 500 possess yields above 4%, GM being one of them. And GM distributed just 25% of its profits as dividends in the third quarter of 2016, compared with an average of just over 40% for S&P 500 companies, indicating ample room to cover its payout and hike it in the future. Analysts see earnings per share dipping from $6 in 2016 to $5.83 in 2017. But with a P/E ratio of 6, GM’s stock already reflects the expected earnings decline—and maybe then some.
- Symbol: VZ (opens in new tab)
- Share price: $52.68
- Dividend yield: 4.3%
Dow component Verizon has paid uninterrupted dividends since its name changed from Bell Atlantic in 2000. It can also claim 10 straight years of dividend growth. But the company has more to offer than an income stream.
Verizon is repositioning itself for a world in which mobile content is ubiquitous and digital ads are moneymakers. It purchased AOL for its digital-advertising technology in 2015 and currently has an agreement to buy Yahoo (YHOO) (opens in new tab). That deal may not go through, partly because of Yahoo’s recent disclosure of a massive data theft impacting more than 1 billion accounts. But Verizon is raking in cash from its mobile business, Fios TV service and other sources. Earnings per share should climb 3.6% in 2017. Throw in a 4.3% dividend yield and you could scoop up total returns close to 8% over the next year if the stock keeps pace with profit growth, as expected.
Dan Burrows is a financial writer at Kiplinger, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
Can You Build a Retirement Income Plan With Both Risk and Reliability?
Two strategies for making retirement savings last — probability-based income planning and guaranteed income planning — can help ensure you have what you need in your golden years, but which is right for you?
By Scott M. Dougan, RFC, Investment Adviser • Published
5 Financial Wellness Tips to Help Weather the Winter
You can regain some control over today’s money pressures by exploring your employer's financial support options and benefits, making plans to save and taking other simple actions.
By Aaron Harding, CFP® • Published
9 Best Commodity ETFs to Buy Now
ETFs These commodity ETFs offer investors exposure to the diverse asset class, which is a helpful hedge against inflation.
By Jeff Reeves • Published
What is a Recession? 10 Facts You Need to Know
Markets Fears of an economic downturn are once again on the rise, but what is a recession, exactly? We tackle this and other questions here.
By Dan Burrows • Published
Warren Buffett Stocks Ranked: The Berkshire Hathaway Portfolio
stocks The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Warren Buffett and his lieutenants.
By Dan Burrows • Published
What Happens When the Retirement Honeymoon Phase Is Over?
In the early days, all is fun and exciting, but after a while, it may seem to some like they’ve lost as much as they’ve gained. What then?
By T. Eric Reich, CIMA®, CFP®, CLU®, ChFC® • Published
15 States That Tax Military Retirement Pay (and Other States That Don't)
retirement Taxes on military retirement pay vary from state-to-state. How generous is your state when it comes to helping retired veterans at tax time?
By Sandra Block • Published
5 Top-Rated Housing Stocks With Long-Term Growth Potential
stocks Housing stocks have struggled as a red-hot market cools, but these Buy-rated picks could be worth a closer look.
By Will Ashworth • Last updated
I-Bond Rate Is 6.89% for Next Six Months
Investing for Income If you missed out on the opportunity to buy I-bonds at their recent high, don’t despair. The new rate is still good, and even has a little sweetener built in.
By David Muhlbaum • Last updated
Stock Market Today: Stocks End Choppy Session With a Loss
A burst of buying power sent stocks higher mid-morning, but the markets couldn't maintain the momentum.
By Karee Venema • Published