Below is the analysis you have come to know for the S&P 500 top 20 dividend paying stocks from highest paying dividend, Frontier Communications (FTR) at 9.70% to the lowest Leggett & Platt Inc (LEG) at 5.00%.
These stocks really bring home the income. The lowest yielding stock offers a yield 119 basis points (5.00% (LEG) - 3.81% (30 YR-Tsy)) more than the 30 Year Treasury bond! To get anything similar you would have to go to 15-30 year municipals with grossed up yields (yields adjusted to a tax equivalent bond).
As far as credit paper goes, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a yield of 4.59%. The SPDR Barclays Capital High Yield Bond ETF (JNK)index has a yield of 9.13% - Yes, Virginia these stocks are attractive on an yield basis.
Stocks Sorted by Dividend Yield - Highest to Lowest
Although the dividend yields "look good", the following shows the same stocks ranked by Price/Earnings (P/E). Remember our rule of thumb is buy below a P/E of 18 sell above a P/E of 28.
The table above does present some challenges in justifying the purchase of a number of the stocks based on P/E.
What would be the remedy? Let us look at forward P/E's!
Now isn't looking at Froward P/E's much better?
The point is to demonstrate that one can always find a justification for violating a rule. The forward P/E is lower in all but two of the 20 stocks shown. Those two are Cincinnati Financial Corp (CINF) and CenturyLink Inc (CTL). As Benjamin Disraeli was once quoted, "Lies, damned lies and statistics". Note, as is fitting, even the quote has a questionable pedigree! Also, there is a wonderful little book by Michael Wheeler with this name that was assigned in an undergraduate statistical analysis class, that I highly recommend.
Here is the analysis of the chosen 20.
As always we may or may not hold these stocks within our portfolio's.
We are not specifically recommending any of these but providing the information for your use.
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