Dividend stocks are always popular with investors. Who doesn't like getting a quarterly check from their investments? And in volatile markets like the current one, dividends are even more valuable because they give investors a return on their investment, and are sometimes an indicator of a stock's defensiveness -- its ability to resist a recession and keep paying a dividend.
If you're looking for dividend stocks, the S&P 500 is always a good place to start. Keep reading to see the five highest-yielding dividend stocks on the broad-market index and if they are buys today.
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1. Pioneer Natural Resources (11.3% dividend yield)
Pioneer Natural Resources (NYSE: PXD) currently takes the crown as the top-yielding S&P 500 stock.
This oil and gas exploration and production (E&P) company has benefited from the surge in oil prices, but investors looking to buy the stock because of its high dividend yield should be aware of the special dividend policy.
Its recent policy has been to pay a variable dividend, meaning it fluctuates every quarter. The policy is to pay 75% of the previous quarter's free cash flow on top of what it considers to be its base dividend. The company's most recent quarterly dividend was $5.71 per share.
Since Pioneer's dividend is variable, investors shouldn't buy the stock if they're relying on the yield. Oil prices have fallen significantly from their peak last year, and could fall further in 2023, especially if the global economy sinks into a recession.
2. Coterra Energy (10.1% dividend yield)
Another oil and gas E&P company comes in at No. 2 on the list. That's Coterra Energy (NYSE: CTRA), which is primarily focused on fracking gas in the Marcellus shale in Pennsylvania.
Like Pioneer, Coterra has a variable-dividend policy, paying a $0.15 per share base dividend per quarter, with the remainder based on profits, saying it would return 50% of profits to shareholders as dividends and another 24% as share buybacks. In the most recent quarter, that gives investors a quarterly dividend of $0.68 per share.
The company's primary focus on gas reduces exposure to a potential pullback in oil prices, but the market seems to think that profits could fall. The stock trades at a price-to-earnings ratio of less than 5, a low number that indicates investors expect prices to fall. However, that does give management an opportunity to buy back the stock on the cheap.
Though the dividend will fluctuate, the combination of a double-digit yield and a low valuation is appealing if energy prices remain elevated.
3. Vornado Realty Trust (9.7% dividend yield)
Switching gears, Vornado Realty Trust (NYSE: VNO) is a REIT based in New York City primarily focused on offices. Like much of the office REIT sector, Vornado is struggling with headwinds across the industry that include rising vacancies and falling rents.
Net operating income at Vornado was mostly flat in its most recent earnings report, and funds from operations were down slightly.
REITs are required by law to pay at least 90% of their profits as dividends in order to retain their tax-favored status, and Vornado's 9.7% yield is impressive, but management has warned that the dividend will need to be "rightsized."
The good news is that Vornado is likely to only do a moderate dividend cut since it has to pay out most of its profits in dividends, and the headwinds in the office sector are likely to continue, keeping the stock price down. Still, investors should be prepared for the payout to go lower.
4. Devon Energy (8.2% dividend yield)
Devon Energy (NYSE: DVN) is yet another oil and gas E&P company, showing that the energy sector is a top source of dividends at the moment.
You probably won't be surprised to learn that Devon has a similar dividend policy to the other energy stocks on this list, with a base dividend plus a variable payout depending on its profits.
The company's most recent quarterly dividend was $1.35 per share, but that actually represented a decline from its prior payout, a reflection of falling oil prices.
Devon shares have soared over the last two years, but the stock could give back some of those gains if oil prices continue to edge lower.
5. Altria (8.2% dividend yield)
Altria Group (NYSE: MO) rounds out the list of top dividend-yielding stocks on the S&P 500. The domestic Marlboro maker has been a dividend powerhouse for two generations, having raised its payout 57 times in the last 53 years.
These days, with tobacco a declining industry, Altria is attempting to pivot away from it. But its investments in the JUUL e-cigarette and cannabis company Cronos Group, as well as the rollout of the Iqos heat-not-burn product, have fallen flat.
However, Altria remains a rock-solid dividend payer because the company is highly profitable and has been able to grow revenue by raising prices to overcome declining volumes. It targets paying out 80% of its profits as dividends, and raised its quarterly payout by 4% last August to $0.94 per share. The tobacco sector also offers the benefit of being relatively recession-proof.
Because Altria isn't dependent on volatile energy prices and it can fund its dividend at the current level, it's the only one of these five stocks whose dividend actually appears to be safe.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Pioneer Natural Resources. The Motley Fool has a disclosure policy.
