The S&P's 10 Best Dividend Stocks

A couple of months ago, I wrote a column about the Dow's two best dividend-paying stocks. It was so popular that I decided to expand the list to 10 and apply it to the S&P 500. In the present column, I've accordingly selected and ranked what are arguably the S&P's 10 best dividend-paying stocks.

My selection and ranking criteria
I selected the companies to rank by screening for the S&P's 10 best-yielding stocks:


Dividend Yield

Frontier Communications (NYS: FTR)


CenturyLink (NYS: CTL)


Windstream (NAS: WIN)


Pitney Bowes (NYS: PBI)


R.R. Donnelley & Sons (NAS: RRD)


Cincinnati Financial


Health Care REIT (NYS: HCN)


Altria Group (NYS: MO)




Pepco Holdings


Source: Yahoo! Finance (as of Oct. 17, 2011). I then ranked and scored them according to sustainability, predictability, and general quality:

  • As a proxy for sustainability and growth potential, I looked at the dividend's size relative to free cash flow per share.

  • As a proxy for predictability, I looked at when the company started paying a dividend.

  • And as a proxy for overall quality, I looked at the companies' scores in CAPS, our free service that pools the resources of The Motley Fool community to help investors differentiate between the market's best and worst stocks. Because CAPS scores go from one to five, however, I doubled each company's number to normalize it with the other categories. I then added up the points and ranked the companies accordingly:


FCF Payout Ratio*


Year Started Paying Dividends (points)

Caps Rating


Total Points


70% (7)

1881 (10)

3 (6)


R.R. Donnelley & Sons

55% (9)

1911 (8)

3 (6)


Pitney Bowes

36% (10)

1934 (6)

3 (6)


Altria Group

111% (3)

1928 (7)

4 (8)



58% (8)

1974 (4)

3 (6)


Cincinnati Financial

93% (4)

1954 (5)

4 (8)


Pepco Holdings

NM (1)

1904 (9)

3 (6)


Health Care REIT

119%* (2)

1990 (3)

5 (10)


Frontier Communications

82% (5)

2004** (2)

3 (6)



78% (6)

2005 (1)

3 (6)


Source:,, and The Motley Fool, CAPS (as of Oct. 18, 2011). FCF payout ratio uses operating cash flow less capital expenditures as a measure of free cash flow. NM = not meaningful due to negative free cash flow.
* Uses payout ratio based on funds from operations. ** Excludes stock dividends under former corporate names.

The S&P's top dividend-paying stocks
The companies that made this list aren't strangers to income-seeking investors. AT&T and Pepco, for example, have paid dividends for more than a century. And Frontier Communications pays one of the highest yields on the market today.

If the past and present are any indication of the future, then income-seeking investors would be well-advised to consider adding some or all of these stocks to their portfolios for the long run.

Foolish bottom line
While exercises like this can help you identify interesting investment ideas, you should never make a decision before researching the company itself. Ask yourself questions like: Do you trust the company's management and board of directors? Do you think demand for its services and/or products will grow in the future?

In the meantime, if you're looking for ideas about where to find great dividends, I urge you to read our free report about 13 high-yielding dividend stocks. It profiles companies in a variety of sectors that are padding the pockets of income-seeking investors. To access it while it's still free and available, click here.

At the time thisarticle was published Fool contributor John Maxfield, J.D., does not have a financial position in any of the companies mentioned in this article.The Motley Fool owns shares of Altria Group.Motley Fool newsletter serviceshave recommended buying shares of Health Care REIT and AT&T. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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