Highest Dividend Payers Are Biggest Losers in S&P 500

Exciting price appreciation and big dividend yields seldom go together. Growth stocks, typically from the technology sector, often pay small or no dividends. Companies with generous payouts tend to be large-cap, mature players in such areas as consumer staples. Lately, many of the best dividend payers have seen their prices suffer.

As of last week, the 101 stocks in the S&P 500 that have no dividends were up an average 20.7% for the year, while the prices for the 100 with the highest yields were down 3.2%, according to research firm Bespoke Investment Group. What’s more, those with a yield of 5% or more were off 8.4%.

As the Bespoke report noted, the leading players’ “5%-plus dividend yields are being more than erased by falling share prices.”

The S&P 500 has had a good record in 2023, although it has ebbed some since late July. As of Wednesday, it had a total return of 15.9%, consisting of a 14.7% price increase and a 1.2% dividend yield.

The stock with the largest yield, that of Marlboro maker Altria, at 8.5%, is barely in the black this year, with its total return (price plus dividends) ahead a mere 1%. Altria, like other cigarette purveyors, has been on a long-term downtrend as cigarette sales shrink. The company has maintained its earnings through price hikes.

Verizon (8.0% yield) and AT&T (7.8%) are in worse shape, with their total returns in negative territory: minus 13.1% and 19.3%, respectively.

Part of these losses stem from revelations about the lead in the telecoms companies’ cable sheathings, installed decades ago—which saddles them with making costly replacements for those wires. The larger challenge is that they are in a more competitive U.S. wireless market, with the likes of T-Mobile grabbing market share for cell phones. Both Verizon and AT&T logged disappointing earnings in their latest quarters.

Smaller banks also have had a tough time of late, with KeyCorp (6.9% yield) last month reporting a bigger-than-expected 50% fall in quarterly earnings. The yearly return is down 29.2%. Like other regional lenders, KeyCorp has had to increase reserves for loan losses, as high borrowing costs threaten small banks. Adding to reserves has sapped earnings. After the collapse of Silicon Valley Bank and two other small lenders, regional banks in general have seen share prices drop.

With a 6.5% yield and a tiny 2023 return of 1.4%, pipeline and terminal operator Kinder Morgan also recently posted lower-than-expected second-quarter revenue due to lower oil and natural gas prices. Another factor: China’s underwhelming post-lockdown recovery has dented fuel demand.

How times have changed. The Bespoke study pointed out that, in August 2020, the S&P 500’s dividend yield of 1.79% was less than half a percentage point (0.46) higher than the highest yield on the Treasury curve: the 30-year, at 1.33%. As of last week, in contrast, the index’s 12-month yield of 1.55% was 2.6 percentage points lower than the lowest point on the Treasury curve, the 10-year, at 4.15%.