Should You Buy the 3 Highest Paying Dividend Stocks in the S&P 500?

Dividend stocks may soon get a closer look from investors. That’s because the Federal Reserve is expected to cut rates on Wednesday, kicking off a new cycle of lower rates that will lower Treasury yields and interest rates on savings accounts.

This process makes dividend stocks more attractive. Dividend stocks are likely to move higher as bond yields fall, as bond investors will rotate back into dividend stocks in search of yield.

If you’re looking for dividend stocks, a good place to start your search is S&P 500. Let’s take a look at the three highest yielding dividend stocks in today’s market index.

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1. Walgreens Boots Alliance (dividend yield: 11.1%)

If you’re a dividend investor, it’s important to understand the difference between high yield stocks and a yield trap and Walgreens Boots Alliance (WBA 0.44%) looks like a classic example of a yield trap.

Shares of the drugstore chain are down 65% year-to-date, in steady decline, as it struggles with a loss of revenue related to COVID, tight margins in its drugstore business, a continued decline in its retail business and challenges related to mismanagement . the acquisition of VillageMD, a primary care clinic, which resulted in significant losses in the business.

By conventional values, Walgreens now looks very cheap, trading at a forward P/E of just over 3, but that’s based on adjusted earnings. However, this likely reflects investors’ fears of more write-downs and lower profits next quarter. In fact, the company incurred $13.6 billion in impairment charges this year, mostly related to the VillageMD acquisition.

It also had negative free cash flow of $1.5 billion this year.

Walgreens may be forced to cut its dividend again, and the company looks set to be kicked out of the S&P 500 soon as its market cap falls below $8 billion. Stock is best avoided.

2. Altria (dividend yield: 7.9%)

Altria Group (MO -2.32%) was one of the best-performing stocks on the market for about 50 years until 2017, but that has changed more recently as smoking rates continue to decline and the company has struggled to evolve with new tastes.

Its $12.8 billion investment in JUUL Labs blew up, and it also lost most of its investment in the cannabis grower Cronos Group.

More recently, the company acquired NJOY for exposure to the vape market.

Tobacco stocks rose in the spring as investors seemed to sense a tipping point as new-generation products became mainstream. Additionally, bond investors can prepare to rotate into dividend stocks.

Altria is a solid dividend payer, with a yield of 7.9%, and the company has increased its dividend 59 times over the past 55 years.

I’m still skeptical of the company’s ability to grow over the long term given the decline in cigarettes, but you could certainly do worse than Altria if you’re looking for a high-yielding dividend stock, as its 7.9% yield is well funded and reliable.

3. Ford Motor Company (dividend yield: 5.6%)

Like Altria, Ford Motor Company (F 0.93%) has been a leader in its industry for generations, but the stock has struggled in recent years as the company has lost money in international markets, chased demand for electric vehicles (EVs) and appears to be growing slowly in a mature industry.

Shares fell after its second-quarter earnings report as the company expects a $5 billion loss in its electric vehicle division and profits fell in the second quarter, in part due to pressure from the electric vehicle division and the slowdown in demand.

The good news is that Ford’s other divisions, the internal combustion division and its commercial vehicles, remain very profitable.

For the full year, Ford expects adjusted operating profit of $10 billion to $12 billion and adjusted free cash flow of $7.5 billion to $8.5 billion. This makes the stock look cheap, trading at just 4 times adjusted operating profit and 5 times adjusted free cash flow.

Ford now pays a dividend yield of 5.6%. If the company can benefit from the rise of hybrid vehicles, the stock could rise from here. While Ford has underperformed the market for years, it looks like a decent buy at the current price, especially if you’re looking for a high-yielding dividend stock.