While it is not appropriate to select stocks based solely on their dividend yield, we will do so for the purposes of this article. We will present the 4 stocks in the S&P 500 Index with the highest dividend yields, which range from 6.93% to a possible 10%.

Verizon Communications $VZ+0.4%

Telecom giant Verizon Communications ranks as the fourth-best dividend payer in the S&P 500 Index with its yield of 6.93%. Although Verizon stock has struggled, the dividend outlook continues to improve. The annual dividend is $2.61 per share, and the recent decline in its stock price has boosted its dividend yield. In addition, it recently surpassed its 16th consecutive annual dividend increase.

Verizon also continues to build a reputation for network quality and improvement. For the 28th year in a row, it has received the most JD Power awards for network quality. In addition, it looks like it may benefit from the emerging network-as-a-service (NaaS) business thanks to 5G. This will likely serve as another source of revenue as Verizon's network powers many of the latest technology applications.

However, this leadership comes at a high price, as Verizon now has $149 billion in debt. Investors will remember that debt was a likely factor in AT&T's pay cut, which should worry Verizon investors.

However, in the first half of the year, free cash flow was about $7.2 billion, enough to cover the $5.4 billion spent on dividends. The aforementioned stock price decline also lowered the price-to-earnings (P/E) ratio to 8.2. While this is not a fast-growing stock, the low multiple reduces the risk of buying now while giving investors a substantial cash return.

Altria Group $MO+1.3%

The tobacco giant has been around for 200 years and has increased its payouts for 52 straight years and counting. This streak signifies Altria 's decades-long commitment to shareholder returns and underscores the stability and predictability of the business.

Altria's stock is earning more than 8%, more than double what investors can get from U.S. Treasury bonds. Altria's dividend payout ratio of 77% is a bit high. However, this is a mature company that doesn't need a lot of money to fund new growth initiatives, so a payout ratio at this level is manageable for a company like Altria.

Altria has historically aimed for a payout ratio of 80%, so the current dividend is in line with that target. It may not be the most exciting stock, but there's nothing boring about getting a payout of 8% per year to maintain a stable and reliable global consumer giant.

Vornado Realty Trust $VNO+3.1%

Vornado Realty Trust is a New York-based REIT that owns and manages nearly 26 million square feet of office buildings in the country's largest cities, including New York, Chicago and San Francisco.

Vornado Realty Trust celebrated its 60th year of trading on the New York Stock Exchange in 2022, so it is clearly an established company. Yet soaring interest rates and recession fears have knocked its price down this year like many other REITs. The 52-week price range for Vornado Realty Trust is $20.18 to $47.26.

Vornado Realty Trust has beaten analysts' estimates for the past two quarters, and its revenue and earnings per share (EPS) have been improving. However, the market only seems to be interested in the next move or two regarding Federal Reserve Chairman Jerome Powell's interest rates.

Although the five-year average dividend yield is 4.96%, the current annual dividend yield of $2.12 is a whopping 8.91%. The quarterly dividend was cut from 66 cents to 53 cents in August 2020, but has remained steady since then.

Pioneer Natural Resources Co $PXD+0.7%

Pioneer Natural Resources is becoming an amazing passive income producer. The oil company has significantly increased its quarterly dividend over the years. Meanwhile, it's complimenting this growing payout with variable dividend payments driven by oil. With rising oil prices and its cash flow, the company is paying huge dividends these days.

The company estimates it could pay out about $27 per share in dividends if oil averages $100 per barrel this year, which would mean a 12% dividend yield. Dividend expenses and yields will rise and fall with oil prices. At $80 oil, Pioneer would pay out $23 per share in dividends (10% yield), while at $120 oil it could pay out more than $30 per share (14% yield).

Pioneer could be a dividend-paying machine in the coming years. The oil company has the best margins and lowest cash costs in its peer group, allowing it to generate plenty of free cash flow. Meanwhile, it has secured low-cost drilling acreage for at least 20 years, giving it the reserves to steadily grow its production. Add in the positive impact of continued share buybacks and debt reduction, and Pioneer's cash flow per share could continue to grow even as oil prices stagnate.

A final note

In all cases, these are mature businesses that don't need a lot of cash to fund new growth initiatives. They simply don't have a use for that money and therefore pay it back to shareholders in the form of dividends. There is nothing wrong with that, but investors should be aware that their total return will then be made up primarily of dividends.

Moreover, there is a chance that the value of the share will decrease over time. If you had invested in VZ stock 5 years ago at a price of $47.42, your average annual dividend yield would have been roughly 5.14%, while the capital return (loss) would have been -4.85%. The total annual return would therefore be some 0.3%. This means we are virtually at zero and would have done better initially even if we had left this money sitting in the bank in a savings account instead.

So what does this imply? Seek out the best businesses that provide stable and sustainable earnings growth so that the company is worth more in the future than it is today. Good signs also include regular dividend growth and a low payout ratio.

DISCLAIMER: All information provided here is for informational purposes only and is in no way an investment recommendation. Always do your own analysis