AT&T used to be the S&P 500 stock that generated so much cash it couldn't pay out dividends fast enough. But it has now been dethroned.
Pioneer Natural Resources, Altria and Verizon Communications are now the highest-yielding S&P 500 stocks that also generate a massive pile of annual cash flow of $5 billion or more, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Finding companies with the cash-flow engines to drive big dividends is one way investors are finding income — even as the economy faces a potential slowdown. Free cash flow is a measure of the cash a company has at its disposal after paying operating and capital costs.
"We continue to believe that weakening economic data, decreased bank lending and a Federal Reserve that keeps interest rates 'higher for longer' will cause the S&P 500 to price in our mild recession scenario by retesting the October lows," said John Lynch, chief investment officer for Comerica Wealth Management.
Big Cash Flow To Back Up Dividends
AT&T used to be in a class of its own when it comes to the combination of high free cash flow and sky-high dividends. It yields a generous 6.3%, backed up by its $13.6 billion in free cash flow.
But now it has competition. And that was especially clear following the telecom company's first-quarter earnings report. AT&T on April 20 reported first-quarter revenue and free cash flow that missed Wall Street targets. AT&T stock plunged as wireless subscriber growth slowed down as expected.
Ten companies in the S&P 500 that generated more than $5 billion in free cash flow the past 12 months now pay more than 4% annual dividends. Those dividends rival AT&T's, and surpass the S&P 500's 1.5% yield.
And if you look, you can find options that outstrip even AT&T's.
Free-Cash-Flow Machines Outpaying AT&T
If you're looking for a cash flow monster that pays out even more than AT&T, Pioneer Natural is now at the top of the list.
The Irving, Texas-based oil and gas exploration and production company generated a staggering $7.4 billion in cash flow in the past 12 months. And that backs up the company's AT&T-beating dividend of 12.2%.
Tobacco seller Altria is another example. The company pulled in more than $8 billion in free cash flow in the past 12 months. And that helped it afford a lofty 8.2% dividend yield.
Some investors, though, might think oil's profit bonanza is temporary — and Altria faces regulation and social backlash against its products. But even AT&T's archrival, Verizon, is now paying out a higher yield. Verizon yields 7.0%, topping AT&T's 6.3% yield. And Verizon also pulls in nearly 4% more free cash flow.
AT&T isn't the only game in town for investors looking for big cash-powered yields.
High-Dividend Companies With Huge Free Cash Flow
| Company | Ticker | Free cash flow (in billions) | Yield | Sector |
|---|---|---|---|---|
| Pioneer Natural Resources | $7.4 | 12.2% | Energy | |
| Altria Group | 8.1 | 8.2 | Consumer Staples | |
| Verizon Communications | 14.1 | 7.0 | Communication Services | |
| AT&T | 13.6 | 6.3 | Communication Services | |
| Prudential Financial | 5.2 | 5.8 | Financials | |
| ConocoPhillips | 18.2 | 5.2 | Energy | |
| IBM | 9.5 | 5.2 | Information Technology | |
| Dow | 5.2 | 5.0 | Materials | |
| Phillips 66 | 8.6 | 4.1 | Energy | |
| Pfizer | 26.0 | 4.1 | Health Care |
Source: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
