We rarely mention United Parcel Service (UPS), Conagra Brands (CAG), and LyondellBasell Industries (LYB) together in the same discussion. They operate in three distinct industries—transportation, packaged foods, and chemicals, respectively—but share two crucial commonalities: they are all constituents of the S&P 500 index, and they are currently the only three stocks within the index offering a dividend yield exceeding 7.5%, making them the “dividend kings” of the index. However, behind these enticing high yields, investors must also be prepared for corresponding risks. Let’s examine the opportunities and challenges facing each of these three companies.
UPS currently offers a substantial dividend yield of 7.8%, but this high yield largely reflects market concerns about its recent difficulties. In 2023, the logistics giant’s revenue plummeted by 9%, with negative growth in four of the past six quarters, and its earnings have halved compared to their 2021 peak. The stock performance is equally concerning, with its market capitalization shrinking by over 60% since the 2021 high.
The fortunes of UPS are closely tied to the macroeconomic environment. During the pandemic lockdowns, an e-commerce boom propelled its business to a peak. Now, pressures from tariffs, declining consumer confidence, and persistently rising labor costs resulting from an agreement with the union two years ago are all suppressing demand. More critically, its relationship with its largest customer, Amazon, has fundamentally changed. Amazon is gradually building its own logistics network, and the two parties have agreed to reduce their volume by more than half over the next two years. If operational improvements fall short of expectations, this 16-year-long streak of dividend growth could potentially come to an end.
Conagra Brands offers a dividend yield of 7.6%. As a consumer staples company, it should possess defensive qualities, but its business also faces challenges. The company’s revenue has declined for two consecutive fiscal years, and its recently released quarterly results fell short of market expectations. Management’s outlook for fiscal year 2026 is also quite conservative, projecting flat organic sales growth and profit targets below market expectations.
Based on the median earnings forecast for the current fiscal year, Conagra’s dividend payout ratio is approximately 79%. While this level is not as precarious as UPS’s, it hinges on the company’s ability to effectively reverse the current situation and successfully improve its profit margins. If stagnant growth and weak profitability persist, the high dividend policy will also come under pressure.
LyondellBasell tops the list with a striking dividend yield of 10.7%, but this appears more like a strong risk warning. This chemical company produces plastics and chemicals used in automotive and packaging industries, and its profitability has significantly contracted for four consecutive years.
The chemical industry is highly cyclical, and a high yield often signals market expectations that the dividend is unsustainable. Investors should not be surprised if the company announces a dividend cut in the near future due to financial pressures, thereby exiting this list of high-yield stocks.
