Dividends can be difficult.
Sometimes a generous dividend yield comes from a flourishing company that would like to share its surplus cash profits with shareholders. I am talking about dividend policy that is fully funded by the company's free cash flows, which usually increases by a few percent every year. This is a robust money machine at work and a powerful income generator for patient investors.
Other times, high yields indicate a company in deep problems. It can be a temporary situation, in which stock prices dive for short or fixed reasons. Shares in this category can be large investments in the long term, because new money can lock a low starting price and a highly effective dividend yield.
Or it can be a deep -rooted problem where the board of directors uses a rich payment to make the financial situation look more stable than it is. This is the category where you want to stay away – Red flags and warnings in abundance.
So let's look at the top three dividend yields in the S&P 500 (Snpindex: ^GSPC) Market index from March 26, 2025. Why are their current yields so high? Do you have to buy them hand over fist, or should they be left alone?
Material science Giant Down (NYSE: Dow) today brings the biggest dividend yield to the table. The company has broadcast twice -month dividend checks of $ 0.70 per share since the restructuring of Dowdupont was completed in the summer of 2019. This is not a story of dividend growth, but the payouts have certainly been reliable.
The yield of Dow tends to float in the long term in the reach of 4% -5%, but they have recently risen due to the highly falling stock prices. It is confronted with macro -economic issues such as a global patchwork of aggressive export rates, high production costs and a limited demand for many important products. You could call Dow's stock a solid purchase today, if you expect the economic tension to fade over time. But the challenges have resulted in negative cash flows and selling top-line selling, so Dow pays the dividends from his cash reserves-then hostage an ideal setup.
Most investors should probably only leave DOW shares in 2025. It is a walk -through story in progress, and there are no guarantees that it will succeed in Dow.
The next is colleague -chemicals titan Lyondellbasell Industries (NYSE: LYB). This leading producer of plastic resins and ethylene gas is located in the same boat as Dow. In the past three years, income is lower and free cash flows lower – but at least they are still positive and larger than the dividend costs.
So the payments of Lyondellbasell currently have more content than Dow. The policy also has a longer history that extends to 2011, and since then an almost perfect series of annual dividends has been increasing. The dividends remained stable in 2019 and 2020, but returned to growth with an increase of 7.6% in 2021.
I would not mind including this basic material veteran in an income -oriented portfolio. Investors must keep an eye on the balance between cash flows and dividend costs, look out for signs of future payments. But the company also has more than two years in dividend controls in its cash reserves. It would cost a long period of weak companies to undermine this robust dividend policy.
And then there is a veteran for pharmacy and supermarket Walgreens Boots Alliance (Nasdaq: WBA). In this case, the dividend history does not really matter, because private investor group Sycamore Partners will soon be removing Walgreens from the public market.
Sycamore pays $ 11.45 per Walgreens share, plus a maximum of $ 3 per share ALS and when the private equity company sells the financial interests of the company in the Villagemd Primary Healthcare Business.
The deal is fully financed and is expected to close in the fourth quarter. I do not expect any further dividend payment with this coordinated exit on the table. The quarterly payouts were reduced in two anyway and free cash flows float around the Breakeven point. Walgreens Boots Alliance is not the dividend stock of the assets you are looking for.
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Otherwise Bylund has no position in one of the aforementioned shares. The Motley Fool has no position in one of the aforementioned shares. The Motley Fool has a disclosure policy.
Do you have to buy the 3 best paying dividend shares in the S&P 500? was originally published by the Motley Fool