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

Key Points

• Even if a company delivers bad results for a few quarters, that doesn't necessarily mean it won't be able to keep paying its dividend.

• However, a high yield can be a result of poor stock performance, which in turn could signal business problems that put the company's dividend at risk.

• 10 stocks we like better than LyondellBasell Industries ›

As the stock market continues to hit new all-time highs, investors who are worried that a pullback could be looming may want to look for strong dividend stocks, which can provide reliable streams of passive income even if share prices slide. And those who have ambitious goals for their returns may be eyeing those with unusually high yields.

But should you buy the three highest-yielding dividend stocks in the S&P 500 now? To start to answer that question, investors should weigh their track records and financials.

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1. Dow Inc. -- 13%

Right now, the highest-yielding stock in the S&P 500 by far is the chemical giant Dow (NYSE: DOW). Now, investors should keep in mind that a high dividend can often be a sign of more fundamental issues with a company's business. When a stock's price falls, its yield automatically rises -- until and unless the actual payout gets cut. But before that occurs, it can lead to a trailing yield that looks extremely tempting.

Image source: Getty Images.

Dow seems to fit this mold. Its stock price is down by more than 45% so far this year. The company has struggled as new competitors have oversupplied the market with some of its products. Tariff and trade war concerns haven't helped its business either, and management is now preparing for a macroeconomic environment in which it books lower normalized earnings.

In the second quarter of 2025, Dow reported a roughly $800 million loss after a $458 million profit one year prior. Revenue fell over 7% year over year. The company also announced actions to shore up its bottom line, laying off thousands of employees and slicing its quarterly dividend in half to $0.35 per share.

Even at that lower payout, Dow's annualized dividend yields 6.45%. "The dividend is a key element of our investment thesis, and that is not changing," CEO and Chairman Jim Fitterling said on the second-quarter earnings call. "We remain committed to targeting a competitive dividend across the economic cycle."

Unfortunately, that payout may not be sustainable. Based on the new amount, its annual payouts would amount to about $1 billion. The company had about $2.4 billion of cash and equivalents at the end of the second quarter. But it also had over $16 billion of long-term debt, and its free cash flow through the first six months of the year was only around $1.7 billion. Things could certainly improve, and I know management wants to keep rewarding its shareholders, but it's unclear right now that it will be able to maintain it, so I would avoid the stock at this time.

2. LyondellBasell Industries -- 10.8%

Another chemical stock, LyondellBasell Industries (NYSE: LYB), has fallen over 30% this year, and faces some of the same headwinds as Dow. In the first six months of the year, its earnings were $0.88 per share -- a significant decline from the $4.25 per share it booked in the same period of 2024. Meanwhile, revenue fell 12% year over year. Management does seem more optimistic, however.

"We are encouraged by recent improvements in pricing and demand for polyolefins, and we remain cautiously optimistic regarding policy developments to address excess capacity in China and revitalize the European chemical industry," CEO Peter Vanacker said in the Q2 earnings report. "LYB is well-positioned to capture these market tailwinds and create durable, long-term value for our shareholders through consistent execution of our strategy."

The company has paid and raised its quarterly dividend every year since 2011, and even increased it this year, albeit by a smaller amount than in recent years. That said, things are beginning to tighten up. On an annualized basis, the current payout comes to about $1.7 billion, and LyondellBasell had about $1.7 billion of cash at the end of the second quarter. The company also has close to $4.7 billion of available liquidity from credit facilities. It generated positive cash flow from operations in the second quarter, and management expects the second half of the year to be cash flow positive as well.

Ultimately, the chemical industry is cyclical, and LyondellBasell's dividend is not a guarantee, but there's a decent chance that it will be able to continue covering it. Conditions could also improve, leading to better cash flow generation, and given the extremely high yield, even if it cuts its payout, shareholders could still be left with a decent yield. Investors should still be wary due to the industry's struggles, but if there is a chemical company to bet on for the dividend, this might be the one. Depending on your risk tolerance, it could merit a starter position in your portfolio.

3. United Parcel Service -- 7.48%

Shipping giant United Parcel Service (NYSE: UPS) is also struggling this year: Its stock has falled 29% due to the impact of tariffs and the company's moves to shift away from its lower-margin Amazon delivery business.

In the second quarter, UPS delivered earnings roughly in line with Wall Street estimates, but with a roughly 13% decline in net income and revenue down about 3%. However, investors seemed more concerned about its negative free cash flow and management's decision to not update its full-year guidance. That said, UPS has a fairly strong dividend track record -- it has either maintained or raised its payout every year since it went public in 1999.

"UPS is rock solid strong and so is our dividend," CEO Carol Tome said on the second-quarter earnings call. "The UPS dividend is backed by solid free cash flow and a strong investment-grade balance sheet. We know how important the dividend is to our investors, and you have our commitment to a stable and growing dividend."

Despite that commitment, the company's free cash flow yield over the past 12 months was below 5%, and it's difficult to understand how the business is shaping up, given the lack of new guidance. So while I expect management to do everything in its power to avoid a dividend cut, investors can't say for certain that it's off the table. Therefore, they should probably wait for more clarity on tariffs or for the business to stabilize before pressing the buy button.

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Bram Berkowitz 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.