The Hidden Risks of High-Yielding Dividend Stocks
When it comes to investing for income, the S&P 500’s highest-yielding dividend stocks may seem like a no-brainer choice. After all, they’re backed by some of the market’s biggest and most established names. But beware – this simple strategy comes with significant risks.
The Top 3 Highest-Yielding Dividend Stocks
As of now, the top 3 highest-yielding dividend stocks in the S&P 500 are Ford Motor Company, Altria, and Walgreens Boots Alliance, with forward dividend yields of 5.6%, 8.2%, and 9.6%, respectively. While these yields are certainly impressive, there’s more to the story.
A Closer Look at Ford’s Dividend History
Take Ford, for example. Its dividend yield of 5.6% may seem appealing, but its payout history has been less than consistent. The dividend hasn’t grown in years, and long-term shareholders have seen the value of their quarterly dividends fall due to inflation. This inconsistent track record reflects the auto industry’s ongoing challenges, and Ford’s sluggish growth in recent years.
Altria’s Reliability Comes with a Footnote
Altria, on the other hand, has earned its reputation as a reliable dividend stock, with over 50 years of annual payout increases. However, its core profit center is in decline, and customers of its iconic cigarette brands are shrinking in number. While Altria’s cigarette business is still generating a ton of cash, its failure to build traction with alternatives means its generous dividend may not be sustainable in the long run.
Walgreens’ Struggles Continue
Walgreens, with its sky-high yield, is struggling to stay afloat. Weakened insurance reimbursement rates, company-specific problems, and a massive debt burden are all weighing heavily on the company. Its recent dividend cut and store closures are a clear indication that things are not looking up.
The Hidden Dangers of High-Yielding Dividend Stocks
The higher the yield, the less reliable the underlying dividend is likely to be. Investors need to consider the full picture before investing in these high-yielding dividend stocks. In many cases, slightly lower yields can offer far more reliability and long-term share price growth.
A Better Alternative
If sustainable dividends and long-term growth are your goals, it may be wise to look elsewhere. Consider exploring other investment opportunities that offer a more reliable income stream and better potential for long-term growth.
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