Within the S&P 500, a small set of companies currently offer dividend yields above 6%. At first glance, these numbers are tempting, especially in a low-yield market. But these outsized yields are often red flags, signaling financial strain or market skepticism about a company’s ability to maintain payouts. This group, known as the “Suspicious 8,” sits on the opposite end of the spectrum from the celebrated “Magnificent 7.”
A 6.3% median yield doubles an investor’s initial investment in roughly 11 years if the stock price remains unchanged. Success stories exist—AT&T’s stock surged 84% over two years, bringing total investor returns to 106% and reducing its dividend yield from risky levels to a more moderate 4%. However, these are the exceptions rather than the rule, and high dividends often come with risk.
Dividend Trends in the S&P 500
Dividends across the S&P 500 average just 1.1%, the lowest since the dot-com era. This decline results from high stock valuations and companies holding back cash. In 2024, dividends represented only 36% of corporate profits, twenty points below the long-term average dating back to 1926, according to Hartford Funds.
Historically, reinvested dividends have contributed a significant portion of total returns. Since 1960, they account for roughly 85% of the S&P 500’s cumulative gains. Even when analyzed by decade, dividends consistently enhance long-term wealth. For instance, in the 1940s and 1970s, they contributed 67% and 73% of total returns, respectively.
Investors looking for sustainable gains are better off seeking moderate, rising dividends rather than chasing the highest yields. Data from Ned Davis Research shows that stocks with new or increasing dividends delivered an average annual return of 10.2% from 1973 to 2024, compared to 6.8% for stagnant payers and negative returns for companies that cut or eliminated dividends.
Exchange-traded funds focused on dividend growth provide safer alternatives. Examples include Vanguard Dividend Appreciation, offering a 1.6% yield, and Schwab US Dividend Equity, yielding 3.8% while weighing financial stability alongside payouts.
The Suspicious 8 Companies
1. LyondellBasell: 11.3% Yield
The chemical giant faces a polyethylene oversupply, with free cash flow projected below its dividend cost. Analysts from J.P. Morgan warn that a dividend cut is possible, reflecting challenging market conditions.
2. United Parcel Service: 7.8% Yield
UPS is navigating tariff-driven demand reductions while exiting low-margin contracts with Amazon. Cost-cutting measures include workforce reductions and facility closures. Despite these challenges, management maintains the dividend is “rock solid strong.”
3. Conagra Brands and Kraft Heinz: 7.3% and 6.1% Yields
Both packaged-food companies face declining profits amid inflation, shifting consumer habits, and competition from smaller brands. Kraft Heinz plans to separate product lines without cutting dividends, but growth remains constrained.
4. Healthpeak Properties and Alexandria Real Estate Equities: 6.3% Yield
These real estate investment trusts pay high dividends backed by pharmaceutical tenants, offering a niche but potentially volatile source of income.
5. Pfizer: 6.3% Yield
Pfizer recently experienced a two-day stock surge of 14%, influenced by a new pricing initiative under TrumpRx.gov, providing discounted medication for uninsured patients. Investor reaction was positive, easing concerns about government price interventions.
6. Altria: 6.2% Yield
Altria has benefited from the rise of oral nicotine pouches but relies heavily on cigarette price hikes to offset volume declines. Philip Morris International remains the leader in smoke-free products.
7. Ford Motor: 6.1% Yield
Ford has seen growth from electric vehicle purchases spurred by the expiration of a tax credit. The company’s dividend yield remains attractive but tied closely to short-term EV demand.
8. Verizon Communications: 6.4% Yield
Verizon’s strategy focuses on expanding fiber broadband while addressing wireless market challenges. Its dividend remains appealing, although investor sentiment reflects lingering skepticism.
Why High Yields Are Risky
High dividend yields can appear enticing, but they often reflect underlying company difficulties. Historical performance shows that moderate, growing dividends consistently outperform high-risk, high-yield stocks over time. Investors should carefully assess free cash flow, market conditions, and payout sustainability before pursuing these opportunities.
The Suspicious 8 offer a mix of risk and reward, highlighting the balance between income and stability. Understanding the financial health behind each dividend is critical for informed investment decisions.