Even well-known stock indexes can spotlight companies yielding over 7%.
It’s not every day you see names like United Parcel Service, Conagra Brands, and LyondellBasell Industries mentioned together. They belong to very different sectors, which makes it intriguing. However, they do share a couple of significant characteristics.
All three are part of the S&P 500. This index includes many iconic stocks, but currently, these three boast a yield of 7.5%. So, they’re the highest dividend yielders in the S&P 500 right now. Investing in these high-yield stocks could feel a bit risky, so let’s dive into the details of their respective situations.
1. United Parcel Service: 7.8% Yield
What can Brown do for you? Well, recently, perhaps not much. Revenues took a 9% hit in 2023 due to slumping inventory transport. While the business is generally reliable, it has seen negative top-line growth in four of the last six quarters, and profitability has halved since its peak in 2021. UPS’s stock has dropped over 60% since 2021, with more than a third of that decline occurring in just the past year.
It’s notable how UPS was a prime player four years back, mainly due to pandemic-driven demand. We all started getting our essentials delivered right to our doors. Now, demand has waned, partly due to falling tariffs and declining consumer trust. New labor contracts with the UPS Teamsters Union are set to raise costs for the next three years. To top it off, long-standing relationships, particularly with Amazon, are also shifting.
UPS and Amazon used to be a perfect match. As e-commerce surged, UPS was a go-to for dependable delivery. But as Amazon expanded its own shipping capabilities, their partnership relaxed. Recently, they agreed to slash freight by more than half in the coming two years.
UPS states that this could open doors for better margin opportunities, and some analysts share that sentiment. Yet, the remainder of the year might still pose challenges. Expected revenue declines will likely make profitability tougher. While Wall Street analysts predict flat revenue next year might lead to profitability improvements, it’s a far cry from the earnings peak of 2021.
For a dividend to remain sustainable, changes are essential. Even aiming for a profit target of $7.23 per share implies a concerning payout rate of 91%. If things don’t turn around quickly, a dividend cut could be on the table, which would break a 16-year streak of increases.
2. Conagra Brands: 7.6%
You might find Conagra products in your kitchen—think Hunt’s Tomato Sauce, Pam Cooking Spray, and Hebrew National Hot Dogs. Usually, consumer staples should weather the storms, but this time, things are off.
Conagra’s revenue has dipped over several consecutive fiscal years. Some analysts have lowered stock price targets following a disappointing fourth-quarter earnings report. The new guidance for 2026 is a letdown, predicting flat organic sales growth instead of the anticipated boost. Based on the midpoint of this year’s income projections, Conagra’s payout rate stands at 79%. While not ideal, it could hold up if margins start to improve.
3. LyondellBasell Industries: 10.7%
Leading the S&P 500 in yield is LyondellBasell. But that’s more of a cautionary sign than a celebration. This company manufactures chemicals and plastics found in cars and packaging, but is currently grappling with declining profitability for the fourth consecutive year.
A key issue here is that they can’t cover their distributions from reported earnings. While cash flow looks better, LyondellBasell finds itself in a challenging sector. Holding high-yield chemical stocks could be risky, especially considering Dow Inc. used to top this list but slashed its dividend in half just a few months ago. So, it wouldn’t be surprising to see LyondellBasell fall off this list soon.
