By Andrew Bary

One of the challenges with high-dividend stocks is determining whether payouts are safe.

Many investors are wary of stocks with 5%-plus yields because of concerns about dividend security.

Payout ratios are helpful in gauging safety. Investors want to see dividends at a lower percentage of earnings -- generally no more than 75%. And when dividends exceed earnings, it's a red flag about sustainability.

A complementary approach favored by longtime dividend investor David King, co-manager of the Columbia Flexible Capital Income fund, is to compare dividend yields to the bond yields of the same company.

If the dividend yield exceeds the bond yield, it's a sign that bond investors are comfortable with a company's creditworthiness and that the dividend is relatively safe. King says this works for companies with investment-grade bond ratings. He uses the 10-year corporate bond yield.

"The logic behind it is that equity investors seem to be concerned about the outlook for a business where fixed income investors, who are numerically oriented and conservative in forecasting, are not," he tells Barron's.

King sees such an opportunity in a few stocks whose dividends exceed corporate bond rates, including Pfizer, Verizon Communications, and United Parcel Service. Many companies in the depressed food sector now meet that test, including Kraft Heinz, Conagra Brands, General Mills, and Campbell Soup.

"Pfizer hasn't cut its dividend during my lifetime," King says. The stock, at around $25.69, yields 6.7%, putting it in the top 10 of the S&P 500.

Chief Financial Officer David Denton said on an investor call in late 2025 that Pfizer is "very focused on maintaining the dividend," but the company didn't boost the payout in December, marking the first time in 17 years without an annual dividend hike.

Pfizer is a low-expectations stock with the shares trading for under nine times projected 2026 earnings. Bondholders couldn't be happier with Pfizer's credit outlook. Its A-rated 10-year debt yields just 5%, less than a percentage point above the 10-year Treasury yield.

Verizon is a perennial member of the S&P 500's high-dividend club. The stock at around $40 has gone nowhere in 10 years, but it has provided a bondlike yield to investors over that span. The dividend yield is now 6.8% and the company boosted its payout by almost 2% in September, marking its 19th straight annual boost.

Verizon said the move reflects "our strong balance sheet, operational performance and commitment to our shareholders." Equity investors worry about competition in both the wireless and broadband markets, but bond investors are comfortable with Verizon credit with its 10-year bonds yielding 5%.

King says the UPS dividend, now 6% with the stock around $108, isn't as safe as those at Pfizer and Verizon. But UPS has signaled that it can maintain it, even with a high payout ratio, due to expectations of higher free cash flow in the coming years.

Food stocks have been chewed up over the past year with Campbell Soup and Conagra down over 30%, as investors worry about weak consumption trends. The result is 5%-plus dividend yields on many stocks, including General Mills, Kraft Heinz, Conagra, and Campbell. In all four cases, corporate bond yields are lower than dividend rates.

Food companies tend to have high payout ratios of 60% or more but they have fairly stable businesses and historically strong commitments to their income-oriented shareholders.

Conagra's 8.2% dividend looks the most vulnerable of the food bunch, but the company maintained its 35-cent quarterly payout in a December press release.

Kraft Heinz plans to split in two during 2026 with the new companies aiming to pay the same combined dividend to the current yield of 6.7%. Kraft Heinz bonds yield 5.5%.

Write to Andrew Bary at andrew.bary@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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January 16, 2026 02:00 ET (07:00 GMT)

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