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Worried About Inflation? Try the 10 Highest-Yielding S&P 500 Stocks.

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AT&T’s dividend yield after the spinoff of its shares in the newly combined Warner Bros Discovery is expected to remain among the highest in the S&P 500.

Ronald Martinez/Getty Images

High dividend yields are a nice offset to inflation, now running at more than 7%, the highest rate in four decades.

Barron’s screened the

S&P 500
for the 10 highest-yielding stocks based on data from S&P Dow Jones Indices. The dividend yields range from 4.8% to 10.1%, far above the 1.4% average of the S&P 500 index.

The list includes some familiar companies like


AT&T

(ticker: T),


Altria Group

(MO), and


IBM

(IBM).

The others are pipeline operators


Kinder Morgan

(KMI),


Williams Cos
.
(WMB) and


Oneok

(OKE); drugmaker


Gilead Sciences

(GILD), telecom operator


Lumen Technologies

(LUMN),


Pinnacle West Capital

(PNW), an Arizona electric utility, and


Iron Mountain

(IRM), the leader in physical document storage.

Lumen Technologies / LUMN$9.9410.1%-16.8%7.0AT&T / T23.878.7-17.77.8Altria Group / MO51.747.018.110.7Kinder Morgan / KMI16.606.511.015.5Oneok / OKE61.816.134.917.2Williams Cos. / WMB29.625.730.922.4Iron Mountain / IRM43.015.733.718.9*IBM / IBM124.355.39.412.7Pinnacle West Capital / PNW68.924.9-9.613.4Gilead Sciences / GILD61.054.8-5.29.3

E=estimate. *Based on funds from operations

Sources: S&P Dow Jones Indices; FactSet

High dividend yields sometimes come with the risk of payout reductions. That is the case with the highest-yielding member of the S&P 500, Lumen Technologies, whose shares now trade around $10 and yield 10.1%.

When Lumen recently released fourth-quarter earnings, the company said that maintaining the $1 a share annual dividend was a “top capital allocation priority.”

Analysts, however, are concerned about the sustainability of the high dividend given disappointing 2022 financial guidance on both earnings before interest, taxes, depreciation, and amortization (Ebitda), and free cash flow. The stock, down about 20% since the earnings release, already seems to be pricing in some reduction in the payout.

AT&T, meanwhile, plans to reduce its annual dividend, now $2.08 a share, to $1.11, following the merger of its WarnerMedia division with


Discovery

(DISCA) in the second quarter and subsequent spinoff of its shares of the new Warner Bros Discovery (as the combined company will be known) to AT&T shareholders. The shares, at around $24, now yield 8.7% based on the $2.08 payout.

The projected dividend yield of 6.6% adjusted for the current value of the Warner stake to be distributed to AT&T holders–a 0.24 share for every AT&T share–will remain among the highest in the S&P 500.

Altria, the top U.S. cigarette company thanks to the strength of the Marlboro brand, has long taken its dividend seriously. It aims to pay out 80% of its earnings in dividends and has raised the dividend at an 8% average annual rate since 2016 to the current $3.60 a share.

That results in a 7% yield at a recent stock price of nearly $52. Altria recently reaffirmed 2022 earnings guidance of $4.79 to $4.93 a share, or 4% to 7% growth off the 2021 base of $4.61. That could mean a dividend boost this summer when the company normally lifts the payout.

Altria faces regulatory risks, but cigarettes are likely here to stay and the company is developing smoke-free products and owns a valuable stake in


Anheuser-Busch InBev

(BUD).

Kinder Morgan, Williams, and Oneok all have significant exposure to U.S. natural gas, which probably has a better outlook than crude oil as electric utilities switch to gas from coal and as global demand for liquefied natural gas grows.

Industry leader Kinder Morgan is the country’s top transporter of natural gas. It is also a leader in moving crude oil and refined products like gasoline. Its shares, at around $17, yield 6.5%. The company said recently that it was budgeting a 3% dividend boost this year. Kinder Morgan says its free-cash flow yield is 10%.

Williams, which operates a major pipeline linking the Gulf Coast with the Northeast, is a pure play on gas transportation with nearly all its revenue coming from fees. Its shares, at around $29, yield 5.7%. Oneok gets most of its revenue from transporting and processing natural gas liquids like propane and ethane. Its customers include petrochemical companies. Its shares, at around $62, yield 6.1%.

IBM is seeking to remake itself into cloud computing company. Yet unlike nearly all other cloud plays, IBM a dividend yield of 5.3% based at its recent stock price of $124. Barron’s made it a top stock for 2022 based on its turnaround potential.

Pinnacle West, the parent of Arizona Public Service, the state’s largest utility, is down about 10% in the past year, to around $69, trailing the 9% gain in the

Utilities Select Sector SPDR
exchange-traded (XLU) as a result of an unfavorable decision by regulators in an Arizona rate case. The stock yields almost 5%, one of the highest among regulated electric utilities.

Because of the adverse rates case, earnings this year are expected to fall about 25%, to $3.90 a share. This will result in a high dividend payout ratio of about 90%. The company sees annual earnings growth of 5% to 7% off the 2022 base over the next five years and says it has a “dividend growth commitment.”

Gilead Sciences was an early pandemic winner, because its antiviral remdesivir was one of the few treatment options.

Its shares hit $85 in the first half of 2020, but have retreated to $61 as sales of the drug, now called Veklury, have dropped as other Covid treatments enter the market. The company is a leader in HIV drugs, but some of its treatments now face generic competition. Gilead, which is developing oncology drugs, trades cheaply for under 10 times projected 2022 earnings of $6.50 a share and yields 4.8%. The company recently boosted the payout by almost 3%.

Iron Mountain holds 720 million cubic feet of “hard copy records.” The company, structured as a real estate investment trust, argues that the business is durable, with boxes remaining in its facilities for 15 years on average. Its shares, at around $43, yield 5.7%.

Write to Andrew Bary at andrew.bary@barrons.com

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