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With interest rates near zero, a growing number of investors craving for dividend income, and the economic outlook for slow growth, it is no surprise we are seeing incredible demand for high-yield stocks. Following are the 10 highest dividend yield blue chip stocks from the S&P 500:
10 Highest-Yielding Stocks in the S&P 500
Name (Symbol)
Sector
Forward P/E
Yield
Frontier Communications (FTR)
Telecommunications
25
9.5%
Windstream Corporation (WIN)
Telecommunications
15
7.9%
CenturyLink (CTL)
Telecommunications
14
7.2%
Reynolds American Inc (RAI)
Consumer Staples
12
6.3%
Hudson City Bancorp (HCBK)
Financials
12
6.1%
Altria Group, Inc. (MO)
Consumer Staples
12
6.1%
AT&T Inc. (T)
Telecommunications
11
6.1%
Pitney Bowes Inc. (PBI)
Industrials
11
6.0%
PEPCO Holdings Inc (POM)
Utilities
14
5.9%
FirstEnergy (FE)
Utilities
13
5.7%
Which stock is the best? I use 8 metrics below to rank these 10 stocks. In each category, the best stock is ranked 10 and the worst is 1.
Scorecard
Metrics
FTR
WIN
CTL
RAI
HCBK
MO
T
PBI
POM
FE
Yield
10
9
8
7
6
5
4
3
2
1
Forward P/E
1
2
4
6
8
7
9
10
3
5
PEG Ratio
3
4
1
8
5
9
6
10
7
2
Debt/Cash Flow
3
2
9
8
1
7
10
6
4
5
Price/Sales Ratio
4
6
5
3
1
2
7
8
10
9
Volatility
5
2
1
3
4
7
9
6
8
10
Short Ratio
5
6
4
8
10
7
9
1
3
2
Potential Gain
6
7
9
5
10
4
8
3
2
1
Total Score
37
38
41
48
45
48
62
47
39
35
The table above shows that among these 10 stocks, AT&T Inc. (T) has the highest total score of 62. It has the lowest debt to cash flow ratio, 2nd lowest forward P/E, volatility and short ratio. Its “potential gain” category, which compares today’s price to 1-year-analyst-target-price, is the 3rd best.
4 out of 10 companies above are from the telecom sector. Frontier Communications (FTR) has the highest yield, so it gets a score of 10 in Yield category. However, it has the worst forward P/E (25). Windstream (WIN) is heavy in debt. CenturyLink (CTL) agreed to buy Qwest (Q) in April 2010 in a deal valued at about $22 billion. AT&T’s main rival, Verizon (VZ), has been handicapped by its CDMA network technology, less common than AT&T's GSM.
In addition to the above 8 categories, you might also include other metrics such as payout ratio, 200-day moving average, price/book ratio, ROE, insider transactions and consistent & growth dividend history, etc. For example, Hudson City Bancorp (HCBK) announced that it may have to reduce its dividend as part of its efforts to recapitalize.
Regardless which metrics you use to analyze dividend stocks, investors should focus on companies with low debt. With higher interest expense, there could be liquidity concerns in an uncertain environment, especially when there is no or low growth ahead for high-dividend stocks.
Conclusion
With stocks booming again, investors once again flock to the hot stock market. The market can stay irrational longer than you can stay solvent, according to John Maynard Keynes. If U.S. congress fails to extend the Bush tax cuts on dividend income, dividend stocks might be taking a hit.
Nevertheless, with treasure yields plummeting, and interest rates possibly staying low for an extended period of time, it makes sense to include some high yield dividend stocks into your income portfolio. After all, we all need to deal with inflation, one of the most insidious risks income-investors face.
Note: Data is from Yahoo Finance and is valid as of March 22, 2011.


Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in T over the next 72 hours.

Source: Scorecard for S&P 500's 10 Highest Dividend Yield Stocks