The 10 Highest Dividend Yielding Stocks

Markets Motley Fool

So you're looking for some high-yielding dividend-paying stocks for your portfolio, you say? (What? That 0.01% interest rate on your Chase checking account just isn't doing the trick for you?) If that's the case, you've come to the right place.

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Today I'm going to run down the 10 large-cap stocks paying the best dividend yields on the market, and point out a few clues to help you figure out which ones are good bets -- and which ones you should avoid. First, let's meet our 10 contenders.

Company

Ticker

Dividend Yield

Energy Transfer Partners, L.P. 

(NYSE: ETP)

11.8%

Plains All American Pipeline, L.P.

(NYSE: PAA)

10.7%

CenturyLink, Inc.

(NYSE: CTL)

10.5%

Annaly Capital Management, Inc.

(NYSE: NLY)

9.7% 

TechnipFMC plc

(NYSE: FTI)

8.6%* 

BT Group plc

(NYSE: BT)

7.2%

BP p.l.c.

(NYSE: BP)

7%

Teva Pharmaceutical Industries Limited

(NYSE: TEVA)

7%

Royal Dutch Shell plc

(NYSE: RDS-A)

6.8%

The Blackstone Group, L.P.

(NYSE: BX)

6.8%

Separating wheat from chaff

What you do with this list is largely up to you. Personally, the very first thing I do is try to narrow the field by avoiding stocks that strike me as "bad," and then focus my efforts on figuring out which of these dividends are attached to good companies instead. My first step: Throw away some of the best dividend payers on the list.

Yes, you read that right. Energy Transfer Partners -- gone. Plains All American Pipeline -- good riddance. And adios to Blackstone Group, too. The reason is that all three of these companies have the letters "L.P." in their names, and to me, that means just one thing: Come tax time, they may send me a Schedule K-1 filing, one of the most loath-ed of tax forms, and expect me to know what to do with it.

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I hate the K-1. And no amount of dividend yield can induce me to buy any "stock" that I think might even potentially send me one and make me attempt to figure it out (or pay an accountant to figure it out for me).

That still leaves me with seven stocks to choose from, however, and I'd like to narrow the field a bit more before making a choice. My next step then is to toss out any stock that appears to be paying more in dividends than it's earning in income. CenturyLink, BP, and Royal Dutch Shell all fail this test, scoring "payout ratios" of 312%, 134%, and 191%, respectively. (Meaning they all pay a lot more in dividends than they are currently earning in profits.) To me, that sounds like a situation that's likely to end in a dividend cut at some point -- and I don't want to risk owning the stock when that happens.

Digging into details

At this point, we're left with just four stocks to choose from -- all paying high dividend yields, all earning at least enough to cover their dividend obligations, and none threatening to send me a K-1. Their names are: Annaly Capital Management, Teva, TechnipFMC plc, and BT Group plc.

Annaly -- one of the more popular mortgage REITs -- has a lot to recommend it, beginning with an ultra-cheap P/E ratio (4.6) and reasonable price-to-book value (1.1) and ending with its generous 9.7% dividend yield. Many investors avoid it regardless because mortgage REITs are considered risky. The assets they own -- mortgages that pay generally fixed interest rates -- lose value when interest rates paid elsewhere rise. With interest rates in the U.S. still near record lows, those rates are much more likely to go up than down. A cautious investor might therefore want to let Annaly shares lie.

Conservative investors might also want to steer clear of Teva, which just suffered a massive earnings miss and slashed its dividend to boot. Given that what we're looking for here is dividends, if Teva's not going to be able to maintain its above-average dividend, there seems little reason to stick around.

Oilfield services provider TechnipFMC looks at first glance like a safer alternative, but this one, too, has issues -- especially for folks looking to buy a stock with a great dividend. TechnipFMC last paid a dividend in 2016 -- $120 million -worth -- but that dividend was paid prior to the merger of Technip and FMC to form the current, merged entity. TechnipFMC has stated its intention to resume dividend payments this quarter. Problem is, the company's market capitalization has increased in size, and its share count has more than tripled, post merger. If TechnipFMC were to pay another $120 million-dividend today for example, it would work out to a dividend yield of only 1%. That would hardly qualify TechnipFMC for the title of a "high dividend paying stock."

Granted, TechnipFMC might pay more than $120 million once it resumes paying dividends. But there's no guarantee that it will, and no guarantee that it will pay enough for it to remain a high yielding dividend stock if it does.

The best dividend of the bunch?

So where does that leave us? Basically, it leaves us with just one dividend stock remaining: BT Group -- aka British Telecom.

Valued at 15.3 times earnings, BT stock costs less than comparable U.S. telcos such as Verizon (16 times earnings) and AT&T (18.3 times earnings) . Despite the discount, data from Yahoo! Finance indicate that analysts are expecting BT Group to outgrow its U.S. rivals -- 5.4% annual growth for BT, versus less than 2% for Verizon and AT&T. And of course, BT's dividend yield of 7.2% is better than the U.S. telcos offer as well.

Granted, BT carries a heavy debt load ($13.4 billion, net of cash on hand), but its debt load is lighter than what Verizon and AT&T carry. Granted too, at a payout ratio of 92%, BT Group is basically maxed out on the amount of dividends it can afford to pay at current levels of profitability. But if BT can eke out the small growth rate analysts forecast for it, investors may be able to anticipate at least some dividend growth in the years ahead.

And with BT already paying so much in dividends, that may be reason enough to want to own this high-yielding dividend stock.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends TechnipFMC. The Motley Fool has a disclosure policy.