Dogs of the S&P 500: 3 High-Yield Dividend Plays for July

In a world of stagnating bond yields and volatile equities, dividend-paying stocks remain a critical anchor for income-seeking investors. The “Dogs of the S&P 500” strategy—long a favorite for chasing high yields—has evolved into a broader hunt for undervalued, high-dividend stocks with robust safety metrics. Today, three names stand out: Altria Group (MO), Northwest Natural (NWN), and Canadian Utilities (CDUAF). While not all are S&P 500 constituents, they embody the core principles of the Dogs strategy: high yield, dividend sustainability, and sector-specific resilience. Here's why they're must-watch plays for July—and why acting now is critical before Fed policy shifts compress yields further.

The Case for High-Yield Dividend Stocks in 2025

With the Federal Reserve holding rates near 5.5% and inflation hovering around 3%, the hunt for income has never been tougher. Ten-year Treasury yields are stuck below 4%, making dividend-paying equities the only game in town for many. The Dogs of the S&P 500 strategy—traditionally selecting the top 10 highest-yielding S&P 500 stocks—has delivered 22% annualized returns since 1979, outperforming the broader market. But as yield-starved investors expand their search beyond the index, opportunities lie in Dividend Kings like MO, NWN, and CDUAF: companies with 50+ years of dividend growth and compelling valuations.

Altria Group (MO): The Tobacco Titan with a 54-Year Dividend Streak

Altria is the undisputed king of dividend consistency, with a 54-year streak of annual increases and a current yield of 6.8%. Though its tobacco business faces regulatory headwinds, MO has adapted by diversifying into nicotine products and cannabis investments. Key metrics:
- Payout Ratio: A manageable 78%, well below the 90% threshold that signals risk.
- Valuation: Trading at just 9x forward earnings, a discount to its five-year average of 15x.
- Sector Catalyst: The shift to smoke-free products (e.g., heated tobacco) is driving growth in emerging markets.

Why Buy Now? MO's stock has underperformed the market in 2025 (-8% YTD), creating a rare entry point. With a Zacks Rank of 2 (out of 5) and a 5.5% earnings growth forecast, this is a “buy the dip” opportunity.

Northwest Natural (NWN): The Utilities Darling with a 5.7% Yield

Northwest Natural, a regional gas utility serving Oregon and SW Washington, offers a 5.7% dividend yield with a 92-year payout history. While its high payout ratio (92%) raises eyebrows, the company's regulated monopoly model and inflation-linked rates provide a safety net:
- Regulatory Stability: 95% of revenue comes from rate-regulated assets, shielding it from market volatility.
- Inflation Hedge: Rates are tied to GDP and energy costs, ensuring cash flows keep pace with rising prices.
- Valuation: Trading at 2.2x EV/EBITDA, a 30% discount to peers like NiSource (NI).

Risk? Opportunity. NWN's payout ratio is elevated, but management has prioritized debt reduction (leverage at 4.5x EBITDA vs. 6x for the sector). A buy for income investors willing to accept moderate risk in exchange for double the yield of 10-year Treasuries.

Canadian Utilities (CDUAF): The Undervalued Utility with a 5.2% Yield

Canadian Utilities, a multi-utility serving Alberta, Yukon, and NW Canada, is a sleeping giant in the dividend space. Key highlights:
- Clean Energy Growth: Investing $1.2B in renewables and grid infrastructure, aligning with Canada's net-zero goals.
- Yield Advantage: At 5.2%, its dividend is 50% higher than the S&P 500 Utilities sector average.
- Valuation: Trading at 2.7x EV/EBITDA and a 4.2% dividend yield, it's a steal compared to U.S. peers.

Why Now? CDUAF is an OTC-traded stock (CDUAF), which limits its S&P 500 eligibility but creates an arbitrage opportunity for investors. A potential upgrade to a major exchange could trigger a re-rating.

The Risks and the Urgency

No strategy is risk-free. The Fed's pause on rate hikes could compress yields, while rising interest rates threaten dividend sustainability. High payout ratios (like NWN's 92%) require scrutiny. However, the relative value of these stocks—MO at 9x earnings, NWN at 2.2x EV/EBITDA, CDUAF at 4.2% yield—makes them compelling buys in a low-yield world.

Investment Thesis: Buy the Dogs—Before the Music Stops

The Dogs of the S&P 500 concept has expanded into a broader hunt for high-yield, dividend-safe stocks. MO, NWN, and CDUAF fit the bill:
1. Altria: A low-risk entry point for income with a 6.8% yield.
2. Northwest Natural: A regulated utility offering inflation-linked cash flows.
3. Canadian Utilities: A valuation outlier with clean energy tailwinds.

Act Now. With the Fed likely to tighten further in 2025, yields will shrink. These stocks offer a rare blend of income, safety, and growth—qualities that will only grow scarcer as rates rise.

Disclosure: This analysis is for informational purposes only. Consult your financial advisor before making investment decisions.