Most of the stocks in the S&P 500(SNPINDEX: ^GSPC) pay dividends. The average dividend yield of this popular market index is 1.3%, as shown by the 1.3% yields of index-tracking exchange-traded funds such as the iShares Core S&P 500 ETF(NYSEMKT: IVV) and Vanguard S&P 500 ETF(NYSEMKT: VOO).
Some S&P 500 components rise far above this modest average. About 100 of the 503 member stocks offer yields of 3.5% or more, and the most generous dividend payers nearly reach double-digit percentages.
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Rich dividend yields can be helpful, as thriving companies share their surplus cash profits with shareholders. But large numbers may also spring from plunging share prices. In that case, a high-end dividend yield may serve as a red flag about the company's business prospects.
Let's take a look at the three leading yields on the S&P 500, as of this writing on May 22. Will this trio feature generous cash flows, dead-end financial results, or some combination of the two?
Dow: 9.7% dividend yield
Industrial chemicals giant Dow(NYSE: DOW) always looks like a strong dividend investment. Its yield has averaged 5.4% over the last five years, making Dow one of the most reliable high-yield ideas out there.
But that rock-solid income bet has surged higher over the last year, nearly doubling the yield since last October. That's not a result of massive payout increases. Flip the yield equation around, and you'll see a swooning stock price instead.
Dow's top-line sales started to fall in the inflation crisis of 2022. The company hasn't managed to kick-start its stalled business yet, and profits are also plunging. The volume of product sales is rising, but average material prices are trending down.
Dow has a turnaround plan in play, but it's a long-term project, with financial targets set for the year 2030. As for the dividend payout, Dow has offered the same quarterly check since 2018.
Turnarounds are never easy, especially when the business downturn is the result of macroeconomic swings. That's what I see in Dow's huge dividend yield today. Investing in this industrial titan is a surprisingly speculative idea, and I would not be surprised to see the company cut back its dividend payments for cost-cutting reasons.
LyondellBasell Industries: 9.6% dividend yield
The next name on this list is another heavyweight in industrial materials. LyondellBasell Industries(NYSE: LYB) faces the same sectorwide weakness as Dow, resulting in similar financial results over the last three years.
I could dive into LyondellBasell's financial details, but you would feel like I had told you the same story before. The reality is that plastics and other industrial materials are hard to sell right now, with tariffs weighing on international business prospects and industrial manufacturing slowing down around the globe.
I should point out that LyondellBasell remains profitable even in this difficult environment, reporting positive earnings in the first quarter of 2025. Therefore, the stock isn't quite as risky as Dow's, and LyondellBasell could be a more reasonable turnaround idea at this point.
Still, I'm looking at a deep downturn here, with Q1 earnings falling 63% year over year. There's nothing easy about this company's recovery plans.
Alexandria Real Estate Equities: 7.8% dividend yield
Finally, Alexandria Real Estate Equities(NYSE: ARE) is a very different business. It's a real estate investment trust (REIT) focused on "megacampus" centers of medical research and services.
That may sound like a robust and stable business, but Alexandria's business growth slowed down over the last year. The real estate sector is not immune to economic trends, and Alexandria's medical researcher clients face uncertain prospects of their own. Looking ahead, the company is sensitive to tariffs and regulatory shifts, which could be a headwind in the current economy.
However, this company remains firmly profitable even in this unpredictable market. Unlike Dow and LyondellBasell, Alexandria also has a long history of annual dividend boosts. So the dividend yield has been inflated by falling share prices in recent months, but there's nothing speculative about the stock.
Among the top three dividend yields on the S&P 500 today, Alexandria Real Estate Equities strikes me as the most reasonable investment idea. Locking in that juicy yield at today's low prices could be a good starting point for a long-term income investment.
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Anders Bylund has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alexandria Real Estate Equities and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
