By Philip van Doorn
With the S&P 500 Index hitting another record high April 9, there’s a lot of concern among investors that stock valuations relative to earnings have gotten too rich. Even stocks with high dividend yields are out of favor with analysts, for the most part.
But there’s a handful that stand out. Nineteen stocks with high yields and majority support among analysts are listed below.
Wall Street analysts — that is, the ones who work for brokerage firms — are known as “sell-side” analysts in the securities industry. The brokerage firms not only help their customers invest, they also underwrite the issuance of shares by companies, which means the brokers must sell those shares to their clients.
So any sell-side analyst likely knows his industry group inside-out and uses a methodical process to estimate earnings, set price targets and assign buy, sell or neutral ratings. But as a group, analysts’ ratings lean positive. Among the components of the benchmark S&P 500 /zigman2/quotes/210599714/realtime SPX -0.33% , there are majority “buy” or equivalent ratings for 281 companies among sell-side analysts polled by FactSet.
There are majority “sell” ratings for only two companies: American Airlines Group Inc. /zigman2/quotes/209207041/composite AAL -1.83% and Lumen Technologies Inc. /zigman2/quotes/200067545/composite LUMN -0.12% , which was formerly known as CenturyLink before changing its name in October.
Lumen actually has a very high dividend yield of 7.75%. The stock has retuned 35% (with dividends reinvested) so far during 2021. But even after that gain, the stock’s five-year total return has been -35% and its 10-year return has been -28%. The company cut its quarterly dividend to a dollar a share from $2.16 in February 2019.
High-yielding stocks favored by analysts
Among the S&P 500, 55 stocks have dividend yields of 3.50% or higher. That may not seem exciting, but it compares with a lowly yield of 1.68% on 10-year U.S. Treasury notes /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.33% .
Among those 55 stocks, analysts polled by FactSet have majority “buy” ratings on only 19 of them. That’s 35%, compared to majority “buy” ratings of 56% for the entire S&P 500.
Here are the 19 S&P 500 stocks with dividend yields of at least 3.50% with majority “buy” or equivalent ratings among Wall Street analysts. The list is sorted by dividend yield:
You can get much more information about each company, including price ratios and news coverage. by looking up its ticker symbol at the top right of this page.
Only Healthpeak Properties Inc. /zigman2/quotes/205497622/composite PEAK -0.89% has cut its dividend over the past five years, reducing its quarterly payout by 19% to 30 cents a share Feb. 9. The company had previously lowered its dividend by 36% to 37 cents in 2016 when spinning off its nursing-home business.
Williams Cos. Inc. /zigman2/quotes/205467183/composite WMB +0.09% and Chevron Corp. /zigman2/quotes/205871374/composite CVX +1.44% provide some insight into what has gone on in energy during the COVID-19 pandemic. Here’s a comparison of total returns for the two companies and the S&P 500, with price movement for continuous forward-month West Texas crude oil contract prices since the end of 2019:
Williams is an oil refiner and pipeline operator, while Chevron is an integrated oil company. It was not surprising to see both drop as fuel demand cratered during the pandemic’s most painful period for financial markets. But 20/20 hindsight makes the stocks’ declines appear to be overreactions.
Williams came roaring back, producing a return of only -8% in 2020. The stock is up 20% so far in 2021. Chevron was down 26% in 2020 and has returned 24% so far in 2021.
Analysts see plenty of price upside for both companies, as you can see in the table — and that excludes the dividends.