Selena Maranjian, The Motley Fool

Sun, Jun 22, 2025, 7:00 AM5 min read

• Dividend-paying stocks are generally powerful performers.

• But not all are alike -- some are riskier than others.

• Be especially careful with ultra-high-yielders.

• 10 stocks we like better than Dow ›

It's hard to argue with dividend investing. Many assume dividends are mainly for retirees, and it's true that dividend income can be critically important when you're living on a fixed or semi-fixed income. But pre-retirees can benefit greatly from dividends, too -- for example, that income can be used to buy more stock!

So, if you're hunting for dividend payers for your portfolio, you may be tempted to buy into the highest-paying dividend stocks. Think twice before doing so, though. Here's why, including a look at the three highest payers in the S&P 500.

First, here's why dividend-paying stocks deserve your attention:

Data source: Ned Davis Research and Hartford Funds.

Their outperformance isn't that surprising since dividend payers have generally grown enough to have somewhat reliable income that supports a commitment to a dividend. When you start comparing dividend payers, though, here are some things to keep in mind.

Don't focus just on the amount of the dividend -- for example, favoring a $3 annual payout to a $1 one. To really compare apples to apples, you need to look at the dividend yield. Let's say the $3 payout belongs to a $240 stock. Its yield would be 1.25% ($3 divided by $240). If the $1 payout belonged to a $40 stock, its dividend yield would be 2.5% ($1 divided by $40). You would get more dividend income per dollar spent on the second stock.

That said, though, a very high yield is often a sign of trouble because when a stock's price drops, its yield goes up. So, it can be best to seek relatively high yields, but not necessarily the highest yields you can find. Here's a look at the three highest payers in the S&P 500 as of mid-June.

Shares of Dow (NYSE: DOW) recently sported a whopping dividend yield of 9.8%. Not surprisingly, the stock is down -- recently by more than 40% over the past year. Its five-year average annual gain is 1%, too. That's not pretty, but the dividend yield certainly is fetching.

So, why is the stock down? Well, per my colleague Daniel Foelber, it's facing weak customer demand, global competition, and high costs. Yikes. Such problems don't always last, though, and Dow is working to cut its costs and diversify even further, which can spread its risks across multiple kinds of operations. (It's been investing in recycling plastic waste, for example.)