A stock's price appreciation or depreciation gets a lot of attention in investing. It's much more straightforward to understand: "If I buy it at this price, I make money if I sell it at a higher price, and lose money if I sell it at a lower price." However, dividends can be a huge part of investors' total returns.
Investing in high-yield dividend stocks can generate great passive income, but a high dividend yield alone doesn't mean a company is worth investing in. In some cases, it's only because of a huge drop in stock price, which could be warranted.
Below are the S&P 500's three highest-dividend-yield stocks. Let's take a deeper look to see if they're worth buying.
WBA Dividend Yield data by YCharts. Yields as of July 23 market close.
1. Walgreens Boots Alliance
Walgreens Boots Alliance (WBA) operates the largest retail pharmacy chain in the U.S. Unfortunately, its scale hasn't stopped the business from struggling and its stock price from plunging over the past few years. In just the past 12 months, WBA's stock price is down over 63%.
WBA's stock trouble is responsible for its ultra-high dividend yield. The company isn't going out of its way to be as shareholder-friendly as possible. For 47 straight years, WBA had increased its annual dividend, but that changed this year when the company cut its dividend by almost half.
It was a much-needed slash for a company that's reported disappointing free cash flow recently. In the past quarter, WBA paid out around $216 million in dividends, while only generating $334 million in free cash flow.
WBA Free Cash Flow Per Share (Quarterly) data by YCharts.
That might've been enough to cover its dividend obligations, but at some point, there needs to be a serious conversation about whether WBA should cut its dividend entirely to free itself from that obligation. And there's a very real chance it will, given the problems the business is facing.
2. Altria Group
Altria is the world's top tobacco company, led by the iconic cigarette Marlboro. Unlike WBA, Altria's high dividend yield is mostly due to the company's commitment to rewarding its investors with dividend payouts. Altria has reached the point where its annual growth will likely only be modest, so the dividend is a way to attract and retain investors.
This first half of 2024 has been one of Altria's best starts to the year in quite some time, partly because of the strides Altria has been making with its e-vapor product, NJOY.
Despite a decline in adult U.S. cigarette smokers, Altria has maintained relatively healthy financials by flexing its pricing power and increasing prices amid declining cigarette volume. This isn't a long-term solution to declining smoking rates, which is why the NJOY success so far has been encouraging.
Altria is a Dividend King, increasing its dividend for 54 straight years. Altria would forego many expenses before cutting or eliminating its dividend, so investors shouldn't second-guess its stability.
3. Verizon
Verizon recently reported disappointing earnings, causing the stock to drop by over 7% in a few days.
Verizon (and, likely, other carriers) have fallen victim to a change in consumer habits. Specifically, smartphone owners are upgrading their phones less often nowadays, which causes a slowdown in revenue growth. Verizon's CEO says customers are now keeping their phones for around three years, which he described as "very long."
In its latest quarter, Verizon reported an additional 148,000 net postpaid subscribers, but all came from its business segment. Its wireless segment lost around 8,000 postpaid subscribers, while competitors like AT&T are moving in a more positive direction.
Verizon still has good long-term potential, but its growth in the near term will likely be minimal.
You may be better off investing in the broad S&P 500
On the individual level, Altria may be the better dividend stock of the three. Its ultra-high dividend is stable, but its long-term business has question marks.
However, if you're not after just a high dividend, you may be better off investing in the S&P 500. Its dividend yield is far below the three companies' (currently around 1.3%), but its total returns have far outperformed them in recent years.
The best way to invest in the S&P 500 is via a low-cost index fund like the Vanguard S&P 500 ETF or SPDR S&P 500 ETF Trust. With an S&P 500 ETF, you don't have to worry about individual businesses' specific issues.
