It’s been a tough year for stocks with high dividend yields, but not all are struggling.
It’s no secret that high interest rates are a headwind for dividend-paying stocks. During the many years of low-to-near-zero interest rates that dominated since the 2007-09 recession, yield-starved investors had few alternatives but to seek out dividends.
But now, with virtually risk-free 10-year Treasuries yielding nearly 4.4%, it’s a no-brainer for investors to put their money in government bonds, instead of stocks that can easily lose value. That’s particularly true because some very high stock yields are the result of big share selloffs, as the two move inversely, a red flag for investors.
In addition, at least some (but certainly not all) dividend-paying stocks tend to be steadier, even defensive companies. That has little appeal to many investors today, as a resilient economy has supported a continuing market rally, including record closes for all three major indexes on Wednesday. The
the
and the
have notched 18, 23 and 8, record closes in 2024 alone, respectively, with the Dow crossing the 40,000 mark for the first time Thursday.
All of those factors mean that high dividend payers face an uphill battle. In fact, of the 42 S&P 500 stocks with dividend yields above the 10-year T-note (as of Wednesday’s close), nearly all are trailing the index. Nearly half—18—are in the red year to date. That’s a grim tally, given both the S&P 500 and the Nasdaq have climbed more than 11% so far in 2024.
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Still, investors shouldn’t abandon the group entirely, particularly if interest rates do start to fall. And even in today’s tough environment a few are thriving. Five are outperforming the S&P 500, while a sixth is roughly keeping pace with the index.
Tobacco giant
has the highest dividend yield in the S&P 500, at 8.55%, and is up 13.7% year to date, through Wednesday’s close. That’s notable because no other stock with a dividend of more than 5% has managed to outperform the S&P 500’s 2024 gain of roughly 11%.
It also comes after a long period in the wilderness for Altria—the company faced blow after blow in 2023, related to factors from disappointing earnings, guidance, illegal e-cigarettes, and concerns about brand value. Nonetheless, the company has been taking some positive steps that warrant increased investor confidence, like the sale of its
stock and a recent $1 billion buyback plan.
is next on the list, with a 5.02% dividend yield and year-to-date gain of 13.2%. It, too, struggled for much of 2023—much like many of its utility peers—as their slower growth and higher payouts couldn’t compete with rising Treasury yields and the market rally. But with the macroeconomic background largely the same, the sector’s recent gains could be at risk.
Pipeline operator
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is third, with a 4.85% yield and 16.2% gain so far in 2024. In September, the company completed its divisive acquisition of Magellan Midstream Partners. The combination rankled many investors, but has made the company one of a small number of players with natural gas pipeline capacity, which has become an increasingly valuable commodity lately.
That goes a long way in explaining how energy infrastructure firm
Cos.made its way to fourth place, with a 4.69% yield and identical 16.2% gain. It finished 2023 with a deal to buy Gulf Coast natural-gas storage assets. As U.S. natural gas production and demand continues to climb faster than capacity to store and transport it, midstream companies in that bottlenecked niche can command higher fees.
has the lowest payout of the five, at 4.62%, but the best 2024 performance, up 18.5%. That’s a far cry from the company’s trajectory in late 2023 and even earlier this year, as its earnings and guidance disappointed, weak sales led to layoffs, and there were concerns it would have to cut its dividend. More recently, earnings in late April offered more upbeat evidence that its turnaround is working, although investors might want more proof before jumping on the bandwagon.
Honorable mention goes to
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with a 4.56% yield and 11.2% year-to-date gain, just a hair’s breadth below that of the S&P 500. The regional bank is in the midst of working toward a stronger balance sheet and higher earnings. Although investors might be wary of the sector following last year’s collapse of Silicon Valley Bank and Signature Bank—and recent worries about New York Community Bank—investors point to Citizens as one of the safer bets.
Write to Teresa Rivas at teresa.rivas@barrons.com
