The S&P 500 is the U.S. stock market’s most popular and followed index, tracking the 500 largest publicly traded U.S. companies. People often consider it a way to gauge the health of the U.S. economy, much like how the S&P/TSX Composite Index reflects the health of the Canadian economy. Dividend investing in Canada does not need to be limited to TSX stocks.
For a well-balanced portfolio, It is nice to diversify your holdings with investments across the border. As of January 8, 2024, here are the three S&P 500 companies with the highest-yielding dividends to consider.
Altria Group
Altria Group (NYSE: MO) is a US$73.38 billion market capitalization American corporation headquartered in Richmond, Virginia. It is one of the world’s largest producers and marketers of tobacco, cigarettes, and related products. As of this writing, it trades for US$41.49 per share, with its share prices lagging for the past several years. At current levels, it pays its shareholders a 9.45% dividend yield.
Many investors have moral concerns about investing in tobacco companies, and much of its decline over recent years can be attributed to the decline in smokers in the United States. Since the company has used its pricing power to offset falling sales volumes, shareholders can feel confident about its dividends for now. That said, it might not be a viable long-term holding as cigarette sales volumes continue dropping.
Verizon Communications
Verizon Communications (NYSE: VZ) is a US$169 billion market capitalization multinational telecommunications conglomerate headquartered in New York, New York. It has been a vital part of the U.S. telco industry over the decades, but it has not been the best holding for its investors over the last few years.
As of this writing, it trades for US$40.20 per share, down by 34.69% from its December 2020 levels. At current levels, it boasts a 6.62% dividend yield.
While the company recently increased its quarterly dividends, the move places more pressure on its already weighed-down finances. The company’s long-term debt has grown by almost a third over the last five years to hit US$145 billion. While it’s likely the company will take measures to manage its debt load, it comes with the risk of dividend cuts in the future.
AT&T
AT&T (NYSE: T) is a US$124.91 billion market capitalization telco headquartered in Dallas, Texas. Another major player in the U.S. telco space, it undoubtedly provides an essential service that makes it a mainstay in the industry. As of this writing, it trades for US$17.47 per share, boasting a 6.35% dividend yield.
The company sold off its media assets in 2022 and slashed its dividends. Despite the cut, it pays its investors unusually higher-yielding dividends.
AT&T’s management anticipates reaching a manageable debt-to-adjusted earnings before interest, taxes, depreciation, and amortization ratio of 2.5 by the first half of 2025. Of the three S&P 500 dividend stocks, it seems the most well-positioned to become a dividend grower in the next few years.
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Foolish takeaway
There are several question marks surrounding all three companies that might make them too risky to consider as reliable holdings for passive income. If you are an income-seeking investor looking for dividends, the TSX has no shortage of high-yielding dividend stocks.
TC Energy (TSX: TRP) stock is a $55.47 billion market capitalization Canadian pipeline and energy infrastructure company based in Calgary.
TC Energy stock trades for $53.41 per share as of this writing, paying its shareholders their dividends at an annualized 6.96% dividend yield in monthly distributions. The company has recently taken several measures to cut costs and raise capital to support ongoing capital projects without taking on additional debt.
Additionally, the completion of its Coastal GasLink project will likely combine with expected interest rate cuts later this year to drive more growth for the company. In turn, the company can become better positioned to continue growing shareholder value.
With its monthly distributions lining account balances with cash dividends, it might be a safer bet for passive-income-seeking Canadian investors to consider for their self-directed portfolios.
