How to Find the “Sweet Spot” for Dividend Stocks

My father was a captain in my hometown fire department and made deputy chief just before he retired.

But in those days, he never made a lot of money. However, he and my mom were very good savers, a trait they thankfully passed on to me.

I’m sad to say that my father passed away several years ago, but my mother is still feisty and full of life. However, she complains about low interest rates almost every time I see her.

I get it. Unless you have saved a huge mountain of money, it is hard to make ends meet when you’re only earning 2% (or less) on your savings.

The yield on the 10-year Treasury bond is now well below 2% and even got as low as 1.6% last week. I can almost hear my mother complaining!

Treasury yields are near all-time lows and the rest of the world is starving from negative interest rates, which is why I have been telling my mother to move her dollars out of low-yielding fixed-income bonds and into a place where she can not only earn a higher yield, but also enjoy some capital appreciation.

I’m talking about dividend-paying stocks.

Fact: The average dividend yield for the 500 companies that make up the S&P 500 is 1.88%.

OK, that is higher than the 10-year Treasury bond, but 1.8% won’t satisfy you or my mother.

The good news for her (and you) is that there are lots of high-quality companies that pay out much, much more than 1.8%. How much more? Here are the 15 highest-yielding stocks of the S&P 500:

  1. Macy’s (NYSE:M), 9.9% yield.
  2. Macerich Co (NYSE:MAC), 9.4% yield.
  3. Altria Group (NYSE:MO), 8.2% yield.
  4. Centurylink (NYSE:CTL), 7.8% yield.
  5. Iron Mountain (NYSE:IRM), 7.8% yield.
  6. Invesco Ltd. (NYSE:IVZ), 7.4% yield.
  7. Helmerich & Payne (NYSE:HP), 6.9% yield.
  8. Occidental Petroleum (NYSE:OXY), 6.9% yield.
  9. Ford (NYSE:F), 6.5% yield.
  10. Philip Morris International (NYSE:PM), 6.5% yield.
  11. L Brands (NYSE:LB), 6.5% yield.
  12. Nielsen Holdings PLC (NYSE:NLSN), 6.3% yield.
  13. Williams Companies (NYSE:WMB), 6.2% yield.
  14. Dow Inc (NYSE:DOW), 6.0% yield.
  15. AbbVie Inc (NYSE:ABBV), 5.8% yield

These are all household-name companies with a long history of paying dividends. But just because a stock pays a fat dividend doesn’t mean that you should buy it. In fact, stocks with extremely high dividends are often ticking time bombs and should be avoided at all costs.

Stocks with dividend payout ratios of more than 100% often end up cutting their dividend.

And watching their stock price fall like a rock as a result.

So a word of caution, too… High dividend-paying stocks are excellent investments, but you should be wary of stocks with sky-high dividends. These particular stocks run the risk of a flash crash due to paying out higher dividends than they can actually afford.

Meaning…

There’s just NO substitute for doing your homework and finding the sweet spot in the middle. Established companies with rock-solid financials that pay handsome (but not excessive) dividends are the way to go.

And if that is good enough advice for my mother… it is good enough advice for you too.

In fact, I expect those types of stocks to be the best-performing stocks you can own over the next one–two years.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert, Mike Burnick’s Wealth Watch

You May Also Be Interested In:

Mike Burnick

Mike Burnick is the editor of Mike Burnick’s Wealth Watch, Infinite Income, Amplified Income and Millionaire Moments. Mike has been bringing his trading strategies to the masses for over 30 years. He has been with Seven Figure Publishing since 2017. In 2018, the average return of Infinite Income beat the...

View More By Mike Burnick