As interest rates decline, dividend stocks may draw increased attention from investors. This shift is anticipated as the Federal Reserve is expected to lower rates on Wednesday, initiating a new cycle of reduced rates, which will consequently decrease Treasury yields and interest rates on savings accounts.
This environment enhances the attractiveness of dividend stocks. As bond yields drop, investors are likely to shift back to dividend stocks in search of better yields.
For those seeking dividend stocks, the S&P 500 offers a fertile ground for exploration. Below is an overview of the three highest-yielding dividend stocks currently within the broad-market index.
### 1. Walgreens Boots Alliance (dividend yield: 11.1%)
Walgreens Boots Alliance, denoted by the ticker symbol WBA, presents a classic example of a potential yield trap. The pharmacy chain’s shares have plummeted by approximately 65% year-to-date. This decline is attributed to several factors, including the loss of COVID-related revenue, shrinking margins in its pharmacy business, a downturn in its retail operations, and significant losses linked to the acquisition of VillageMD, a primary care clinic.
Despite appearing highly undervalued, trading at a forward P/E of just over 3 based on adjusted earnings, this valuation likely mirrors investor concerns about future write-downs and declining profits. The company has recorded impairment charges amounting to $13.6 billion this year, mostly related to the VillageMD acquisition, and it reported a negative free cash flow of $1.5 billion.
Given these challenges, Walgreens might have to cut its dividend again, and may soon be removed from the S&P 500 as its market cap has fallen below $8 billion. Investors might want to exercise caution with this stock.
### 2. Altria (dividend yield: 7.9%)
Altria Group, represented by the ticker symbol MO, was a top-performing stock for nearly five decades until 2017. However, the decline in smoking rates and the company’s difficulty in adapting to new consumer preferences have altered its trajectory. The $12.8 billion investment in JUUL Labs did not yield expected results, and the majority of the investment in cannabis grower Cronos Group was also lost.
More recent strategic moves include the acquisition of NJOY to gain a foothold in the vape market. Tobacco stocks saw gains earlier this year as next-generation products gained traction, and bond investors prepared for a shift towards dividend stocks.
Altria maintains a robust dividend yield of 7.9% and has increased its dividend 59 times over the last 55 years. While long-term growth remains a question due to declining cigarette demand, Altria provides a well-funded and reliable dividend yield for those seeking high-yield investments.
### 3. Ford Motor Company (dividend yield: 5.6%)
Ford Motor Company, with the ticker symbol F, has been an industry leader for generations. Nevertheless, the stock has faced challenges in recent years, recording losses in international markets, encountering plateauing demand for electric vehicles (EVs), and exhibiting slow growth in a mature industry.
The stock experienced a significant drop following its second-quarter earnings report, which included projections of a $5 billion loss in the EV division and reduced profits partly due to pressures in the EV sector and slowing demand. However, Ford’s combustion vehicle division and commercial vehicle sector remain highly profitable.
For the full year, Ford anticipates an adjusted operating profit ranging from $10 billion to $12 billion and an adjusted free cash flow between $7.5 billion and $8.5 billion, making the stock appear undervalued at 4 times its adjusted operating profit and 5 times its adjusted free cash flow.
With a current dividend yield of 5.6%, Ford might see an upswing if it can capitalize on the growth of hybrid vehicles. Despite recent underperformance, Ford appears to be a reasonable option for those seeking a high-yield dividend stock at its current price.
