High dividend yields are great for equity income investors, but it’s possible to get too much of a good thing. The very highest returns can be pitfalls and vulnerable to cuts in their payouts.
The S&P 500 High Dividend Index, screened through an approach embraced by Savita Subramanian, head of US equity strategy at BofA Securities, offers a way to get high payouts with more modest risk. The index, composed of 80 high-yield dividend stocks, selected from the
has easily outperformed the S&P 500 so far this year, with a total return of 23% through Monday, compared to 18% for the broader benchmark.
Subramanian suggested that instead of buying the more vulnerable stocks in the top quintile of the S&P 500 in terms of returns, investors should look to the second quintile. Barron’s the same approach applied to the S&P 500 High Dividend Index.
We divided the index into quintiles, each containing 16 stocks. The first contained the highest yield, so we looked at the six highest yields in the second quintile, based on FactSet data. All six of these companies have avoided dividend suspensions due to the pandemic, although one had to cut its payout. All but one of them have made dividend increases this year.
Simon Property Group
(ticker: SPG), a real estate investment trust specializing in regional shopping centers. The stock is yielding an attractive 4.6%, with a return of around 50% this year through August 2, including dividends.
The company recently announced a quarterly dividend of $1.50 per share, up 10 cents, or 7%, from $1.40 in the second quarter.
During the pandemic last year, the company cut its quarterly payout from $2.10 to $1.30 per share. The increase announced in June was the first stimulus since the cut.
|Company/ticker||Dividend Yield||Recent price||YTD Return||Market value (car)|
|Simon Property Group/SPG||4.6%||$126.32||51.4%||$47.5|
|People’s United Financial/PBCT||4.6||15.63||25.1||6.7|
|International Business Machinery/IBM||4.6||141.42||15.1||126.8|
Data from 2 Aug
With returns of 4.6%, People’s United Financial (PBCT), a regional bank in Bridgeport, Conn., with a footprint spanning southeastern New York state and parts of New England, also weighed in;
International business machines
(IBM) and the chemical company
Shares of International Business Machines (IBM) have done well this year, returning around 15%, versus the S&P 500’s 18%. The company is a relatively new member of the S&P 500 Dividend Aristocrat Index, a group of companies who have paid a higher dividend for at least 25 consecutive years.
IBM announced a one-cent, or less than 1%, dividend increase to $1.64 per share in April.
LyondellBasell Industries recently announced a quarterly payout of $1.13 per share, up nearly 8% from $1.05.
Meanwhile, insurer and money manager Prudential Financial (PRU) recently gained 4.5%. The company announced a quarterly dividend of $1.15 per share in February, up from $1.10 earlier, for an increase of nearly 5%. In an interview with Barron’s earlier this year, CEO Charlie Lowrey described the company’s dividend as “something you don’t mess with.”
Chemical company Dow (DOW), which also recently returned 4.5%, is maintaining its quarterly dividend at 70 cents per share. The total return for the year so far was about 13% as of Monday.