Should You Buy the 3 Highest-Paying Dividend Stocks in the S&P 500?

Key Points

• UPS, Conagra, and LyondellBasell are currently yielding between 7.6% and 10.7%.

• UPS is going through growing pains, but it could start to turn the corner next year.

• Conagra's payout is also sustainable, but when it comes to LyondellBasell, we've already seen one high-yielding chemical stock buckle to the cyclical pressure.

• 10 stocks we like better than United Parcel Service ›

You don't often find United Parcel Service (NYSE: UPS), Conagra Brands (NYSE: CAG), and LyondellBasell Industries (NYSE: LYB) in the same opening sentence. It's a first for me, for sure. They are very different companies in very different industries. However, they have two important things in common.

They all happen to be components of the S&P 500 (SNPINDEX: ^GSPC). That's a big fraternity of iconic stocks, but these three happen to be the only names in the popular index currently packing a yield north of 7.5%. These are the three highest-paying dividend stocks in the S&P 500. As tantalizing as it may seem to unearth high-yielding investments in the S&P 500, buckle up for the risks. Let's take a closer look at the bull and bear cases for these three stocks.

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1. United Parcel Service: 7.8% yield

What can Brown do for you? Lately, it hasn't been much. Revenue plunged 9% for the transportation stock in 2023. Business has stabilized somewhat, but top-line growth has been negative in four of the last six quarters. Trailing profitability has been been cut in half from its 2021 peak. Shares of the package delivery giant haven't fared better. The stock has shed more than 60% of its value since its 2021 high, down by more than a third in the past year alone.

It's easy to see why UPS was in its prime four years ago. The pandemic made us homebodies, ordering stuff online to be delivered to our homes. It's also easy to see why it's not at its best these days. Tariffs and waning consumer confidence have stymied demand. A deal it struck with the UPS Teamsters union two summers ago locks in rising labor costs through at least the next three years. There's also the seismic shift in its relationship with longtime partner Amazon.

Image source: Getty Images.

UPS and Amazon used to get along like peanut butter and jelly. As e-commerce erupted in popularity, UPS was the obvious partner to nail the fulfillment. However, Amazon has outgrown UPS. It has expanded its partnerships with other shippers and built out its own last-mile fleet. Earlier this year, UPS and Amazon agreed to cut their shipments by more than half in the next two years.

UPS argues that this will give it the opportunity to focus on higher-margin opportunities. Analysts somewhat agree. The rest of this year will continue to be problematic. Revenue declines will accelerate in the second half of this year, and profitability will fall even harder. Wall Street pros see flat revenue on improving profitability next year, but it will still be earning half of what it was in 2021.

Something has to change for the beefy dividend to be sustainable. Even next year's improving profit target of $7.23 a share translates to a stiff payout ratio of 91%. Any stumbles along the way, and it could be an end to this 16-year streak of hikes. A dividend cut is also a real possibility if the headwinds don't dissipate soon.

2. Conagra Brands: 7.6%

There's a good chance that there's some Conagra representation in your pantry or fridge. Conagra's portfolio includes Hunt's tomato sauce, Pam cooking spray, and Hebrew National hot dogs. Toiling away in consumer staples is supposed to be an all-weather niche, but business is going the wrong way.

Revenue has declined in back-to-back fiscal years. Several analysts slashed their price targets on the stock after falling short on both ends of income statement for its fiscal fourth quarter. Its guidance for the new fiscal 2026 year calls for flat organic sales growth with profits falling well short of what the market was forecasting. Conagra's payout ratio is 79% based on the midpoint of its net income guidance for this fiscal year. It's not great, but sustainable if it can start to beef up its margins.

3. LyondellBasell Industries: 10.7%

The highest yield among the S&P 500 -- and it isn't even close -- is LyondellBasell. It's not a dinner bell. It's a warning bell. The producer of chemicals and plastics used in automotive and packaging parts is seeing its profitability contract sharply for the fourth year in a row.

It's the one stock on this list that is currently not able to cover its distributions out of its reported earnings. The snapshot is better when you focus on cash flow and cash earnings, but LyondellBasell is still in a tough spot in a cyclical industry. Being a chemical stock atop of the S&P 500's high yielders is dangerous. Dow Inc. was on top of this list until this summer, until it cut its juicy dividend in half in July. If LyondellBasell isn't on this list in a few months you shouldn't be surprised.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool has a disclosure policy.