Should You Buy the S&P 500’s Highest-Yielding Dividend Stocks Heading Into 2025?

By Investor Empires On Dec 8, 2024

I will never tire of praising dividend stocks as the unsung heroes of the market. Although they are not as exciting as high growth stocks, they can be just as effective in making money for investors.

Fixed income from dividend stocks can also help protect investors from the inevitable Stock market fluctuations. Whether rates are high, low, or stagnant, you can count on receiving your monthly or quarterly payments (in most cases).

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As we head into 2025, it’s never too early to start thinking about which dividend stocks could make sense for your portfolio, especially those with attractive stocks. Dividend returns. Here are the highest-yielding stocks in the S&P 500:

a company	Dividend yield
Walgreens Shoe Alliance (Nasdaq: WBA)	11.8%
Altria Group (NYSE: MO)	7%
Pfizer (NYSE: PFE)	6.6%

source: . Dividends as of December 6.

Despite their high dividend yields, not all of these companies are worth investing in in the new year. Let’s take a look at where each of them stands.

Image source: Getty Images.

On paper, an 11.8% dividend yield sounds like an income investor’s dream. However, when you look at why Walgreens Boots Alliance’s payout is so high, you’ll see where the problem lies — especially considering the company cut its quarterly payout by 48% to $0.25 early this year.

As of Dec. 6, Walgreens Boots Alliance’s stock price is down more than 68% in 2024.

There hasn’t been a lot of encouraging news coming from the company lately. Its operating loss in fiscal 2024 was $14.1 billion, and it plans to close about 1,200 stores in the next two years, facing competition from the likes of Amazon and Walmart It is increasing steadily. Needless to say, none of these facts inspire optimism among investors.

The investment thesis gets worse when you consider that the stock’s appeal was its dividend, and even that seems at risk. Walgreens Boots Alliance paid a $1.3 billion dividend in fiscal 2024 while being far from profitable. This is a recipe for another dividend cut on the horizon.

WBA total dividends paid (annual) chart. — Total WBA dividends paid (annual) Data by YCharts. Negative numbers represent payments.

Whether Walgreens Boots Alliance will call its dividend back or even suspend it entirely remains to be seen, but it’s not a stock I feel comfortable investing in until 2025.

Tobacco giant Altria has routinely been one of the highest-yielding stocks in the S&P 500. The stock is up nearly 37% this year (as of Dec. 6), making its yield of about 7% — more than five times the average S&P 500 – even more impressive.

Some of Altria stock’s success this year can be attributed to the progress it has made in its non-cigarette categories like vapor, with its recently acquired product, NJOY.

This is important because smoking rates among adults in the United States are steadily declining. According to the Centers for Disease Control and Prevention, in 2021, the percentage of cigarette smokers in the United States has dropped to about 11.5% (it was 20% in 2005).

Altria is by far the country’s largest cigarette producer, so this decline in smoking rates is having a tangible impact on its business. However, it offset the impact of lower cigarette sales volumes by raising per-pack prices. (Cigarette costs are not usually the main reason people quit smoking.)

This is not a long-term solution, but it has kept the company’s financial position relatively stable.

MO revenue chart (annual). — MO Revenue (annual) Data by YCharts.

Altria is a stock you can feel comfortable buying through 2025, but it will be important for shareholders to monitor its progress (or lack thereof) in its non-cigarette categories. The performance of these companies will be key to their long-term success.

Pfizer stock is down a bit since its late 2021 high of just over $61, but it’s not time to ring alarm bells yet.

Much of Pfizer’s recent financial success has come from its COVID-19 vaccine and antiviral drugs, but the company has continued to diversify its product lineup and expand its operations. During the first three months of 2024, it spent $7.8 billion on internal research and development projects.

When Pfizer raised its dividend in December 2023, it marked its 15th straight year of increases, and there’s no reason to think it won’t continue to continue. Over the past decade, its payouts have increased by 50%.

PFE dividend chart — PFE Earnings Data by YCharts.

Pfizer has a lot of potential in the long term, especially as it continues to expand its business and becomes less reliant on a few products for revenue.

If you’re looking to get exposure to the healthcare sector, Pfizer is a stock with a lot of upside potential and relatively low downside risk. Its above-average return should help investors exercise a little patience as management works to find new sources of growth following the sharp rise in sales and subsequent decline related to its COVID-related products.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stephon Walters He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Pfizer, and Walmart. The Motley Fool has Disclosure policy.

Should you buy the highest-yielding stocks in the S&P 500 before 2025? Originally published by The Motley Fool