Dividend investing is popular again. Investors have taken to heart Jeremy Siegel's studies, which show that higher-yielding stocks tend to offer greater returns over time than low- or no-yield stocks.
The highest dividend yields can be very tantalizing. As long as a stock yielding 15% doesn't lose value, you'll make 15% in one year! In more cases than not, however, an astronomical yield is a bad sign for a stock. Since dividend yields and stock prices move in opposite directions, a high yield usually means that investors have begun to worry about the business and driven down its stock price.
However, certain types of companies such as REITs have to pay out most of their income as dividends, so their yields will be higher than "normal." Dividends are not guaranteed; you need to make sure that a business is generating enough cash to pay its dividend, or your investment could be disastrous.
I ran a screen for the highest-yielding stocks, the only limitation I've set this time is that the dividend stocks must have a market cap greater than $500 million and must be a corporation, so no REITs or MLPs.
Here are the top 25 highest-yielding stocks the screen produced:
Market Cap (millions)
Great Lakes Dredge & Dock
R.R. Donnelley & Sons
Ship Finance International
National Presto Industries
First Financial Bancorp
New York Community Bancorp
Capitol Federal Financial
Source: S&P Capital IQ.
These stocks are a good place to start your research, but they're not formal recommendations.
Let's take a look at the top 3:
Boise is first with a trailing yield of 13.8%. Boise does not pay a regular dividend; 2012 was the third year in a row that the company paid a special dividend. In fact, in 2012 the company paid two special dividends: one of $0.48 per share and one of $0.72 per share. On the company's most recent conference call, when asked about future dividends, Boise's CEO reiterated the company's track record of returning capital to shareholders but said he would not commit to anything until later in the year. While Boise could indeed continue to pay out large dividends, if you are looking for regular dividends, pass on Boise.
SeaDrill is second with a trailing yield of 12%. This is also artificially high as the company accelerated its fiscal fourth-quarter dividend to December, which normally would have been paid in March, to allow investors to get the lower tax rate on dividends, which expired at the beginning of 2013.
The company owns offshore oil rigs that it rents out to energy companies. SeaDrill has made it a policy to steadily return cash to shareholders through dividends. The company does not pay a specific quarterly dividend -- its dividend policy is "guided by earnings expectations, market prospects, current capital expenditure programs as well as investment opportunities."
SeaDrill is in a great place competitively as it has some of the newest ultra-deepwater drillships among the drilling fleet. SeaDrill has also benefited from largely avoiding Brazil where its competitor Transocean is being sued for $20 billion over a relatively small oil spill. SeaDrill has just three rigs leased currently to Petrobras in Brazil and that may go down in the future as Petrobras just announced an oil rig lease freeze.
Overall, the company has a high debt load, but this is backed by great assets and long-term contracts. Dividend investors should take note.
Third is Windstream with a trailing yield of 11.5%. The company is a rural telecom that has been working to transition from a focus on residential clients to business clients. The company pays out a high 87% of its free cash flow as dividends. Investors have seen before with Frontier Communications and CenturyLink what happens to companies that cut their dividend. Fool analyst Dan Caplinger recently laid out 3 areas Windstream investors should watch, and I recommend anyone who is interested in Windstream should read it.
Foolish bottom line
Remember, these seemingly irresistible yields could be ticking time bombs, so do your own due diligence. Also, make sure you diversify your picks across various sectors. As investors relearn every decade or so, you never want to put all your eggs in one basket -- no matter how tempting the dividends are.
If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.
The article The 25 Highest-Yielding Dividend Stocks in March originally appeared on Fool.com.
Fool contributor Dan Dzombak owns shares of Frontier Communications. The Motley Fool recommends Exelon, Giant Interactive Group, and Seadrill. The Motley Fool owns shares of National Presto Industries, Seadrill, Transocean, and United Online. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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