According to Finviz.com, if you’re looking for high yield S&P 500 stocks, energy companies such as Pioneer Natural Resources (NYSE:PXD) at 10.75% and Devon Energy (NYSE:DVN) at 8.63% are the best of the best.
Energy stocks have lost their momentum in 2023 — the worst-performing S&P 500 sector year-to-date, down 4.1% through July 21 — so it’s unsurprising that energy stocks have some of the highest yields right now.
I’m tasked with recommending three stocks from the index with a dividend yield worth betting on. I’ll exclude energy stocks from my 503 possible choices to make things interesting.
The average S&P 500 yield as of July 21 was 1.5%. There are approximately 261, yielding more than that. I’ll select one from three different sectors. To add to the intrigue, the stocks selected must be up at least 10% on the year, providing a more difficult task than just picking three stocks with a higher yield.
LyondellBasell Industries (LYB)
LyondellBasell Industries (NYSE:LYB) represents the basic materials sector with a current yield of 5.5%, 3.7x the average S&P 500 yield. Over the past five years, it’s delivered very little to its shareholders, generating an annualized total return of 2.0%.
I’m betting the company, one of the world’s largest producers of polypropylene and other chemicals, is ready for a bit of reversion to the mean. It can’t possibly continue this streak of poor performance in the markets.
Especially since its largest shareholder is Access Industries, the private holding company of Ukrainian/American billionaire Len Blavatnik; he doesn’t seem to make too many mistakes. That’s why I recently said Access is one of three dream initial public offerings I’d love to see.
Of course, when you are the 35th wealthiest person in the world, you can afford to be patient. It also doesn’t hurt that Access’s 66.7 million shares generate $333 million in annual dividends (based on a $5.00 annualized dividend).
In the trailing 12 months, it generated $3.30 billion [cash flow] in free cash flow on $47.5 billion in revenue [income statement]. That’s good for a free cash flow margin of 6.9% and a free cash flow yield of 11.2% (based on market cap) or 8.1% (based on enterprise value).
Either way, LYB stock is cheaper than it’s been in the past decade, making it an excellent value play for patient investors.
Simon Property Group (SPG)
Simon Property Group’s (NYSE:SPG) current yield is 5.9% based on an annualized rate of $7.40. America’s largest mall operator remains in a funk — its shares, while up nearly 20% in the past 52 weeks, are down 26% over the past five years — despite the fact much of retail is doing just fine in 2023.
Furthermore, the demise of the mall has provided the real estate investment trust an opportunity to redevelop some of its malls into alternative uses for its massive real estate footprint.
For example, the REIT announced on May 31 that it broke ground on a Residence Inn by Marriott at its Northgate Station mall in Seattle.
“We’re excited to work with Marriott to bring the Residence Inn brand as the next phase of the transformational development. Once complete in 2025, the new hotel will be an amenity to the community, Kraken Community Iceplex, and Northgate Station,” said Patrick Peterman, Senior Vice President of Development & Mixed Use, Simon.
As cities look for more housing, malls will experience considerable residential real estate growth as their parking lots get redeveloped into rental and condominium housing. With some of the best locations in the country, Simon is at the beginning of a renaissance of sorts. This makes it one of those high yield S&P 500 stocks.
Investors have failed to recognize the value of the land under which Simon’s malls lie. SPG is also a value play.
Best Buy (BBY)
Best Buy (NYSE:BBY) last increased its dividend with the April 2023 payment. It now pays 92 cents a share, up 4.5% from 88 cents previously—the annualized rate of $3.68 yields a healthy 4.3%.
The electronics retailer’s CEO, Corie Barry, took over from Hubert Joly in June 2019. Barry had the unenviable task of following one of America’s best turnaround artists. However, she had been with Best Buy since 1999 — through the good and bad — so she would be prepared for the events brought on by Covid-19 and post-pandemic.
The company is experiencing a slowdown in sales. Still, it’s one of those high yield S&P 500 stocks.
On May 25, Best Buy reported an 11% decline in revenue to $9.47 billion, with a 10.1% decline in same-store sales. On the bottom line, it earned $244 million, 28.4% less than a year ago.
“We’ve been seeing a consumer who is — whether or not you call it a recession — exhibiting some recessionary behaviors,” CNBC reported Barry’s comments about the quarter.
Higher interest rates will do that.
Despite declining sales and earnings, it beat analyst earnings estimates — $1.15 vs. the $1.11 consensus — in Q1 2024. It also reaffirmed its guidance for 2024 of at least $43.8 billion in revenue and a same-store sales decline of 4.5% at the midpoint of its guidance.
While I wouldn’t say anything from a valuation perspective stands out as being exceptionally cheap, it will be incredibly undervalued if, as Barry suggests, we are at “the bottom for the decline in tech demand.”
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
