The number of companies paying dividends in the S&P 500 is at a 15-year high. According to FactSet, just over 80 companies in the index do not pay dividends. Paying dividends has become more attractive for companies of all sizes.

See The Highest Yielding Dividends

However, not all dividends are created equal. Of the 500 companies in the index, 99 pay their shareholders a dividend of 3% or more. By comparison, a 10-year Treasury note yields 2.66%. While Treasury securities come with an implied guarantee of a return of principal, share price appreciation of these companies also is expected to provide additional positive returns. Dividends are intended to make those returns even better over time.

Dividends are considered among the most straightforward measures of capital returns. After all, they represent cash going back into the hands of investors directly from the company. However, a high dividend yield does not give a complete picture of the value of an investment. The health of the company also has to be considered. Investors need to be able to differentiate a high dividend from a safe dividend.

Some companies, like ConocoPhillips (NYSE: COP), can afford to offer investors a 3.9% dividend yield. While its dividend is among the highest in the S&P 500, ConocoPhillips likely could pay out even more, since it is among the most profitable companies in the country.

Surprisingly, some companies pay dividends even when they lose money. For example, Windstream Holdings Inc. (NYSE: WIN), with a 12% dividend yield, actually pays out dividends of more than twice its earnings. However, the combination of high dividends and unprofitability are not sustainable if the economy hits another bump in the road.

To identify the highest-yielding S&P 500 stocks that are safe for investors, 24/7 Wall St. reviewed the 99 S&P 500 companies that are currently paying dividends of 3% or more. While the three highest dividends in the S&P 500 are in communications, none satisfy all of our screen criteria.

We excluded any company with a market capitalization of less than $10 billion. We also eliminated companies projecting a net loss or that cannot afford to maintain those dividends. Many of the dividend and earnings figures are based on forward-looking analyst estimates.

We put a limit on the income payout rate at 80%, meaning that companies must retain 20% of their expected earnings this year and next year for other uses, such as share buybacks and growth opportunities. This excluded the real estate investment trusts (REITs), which pay out almost all income to maintain their special tax structures.

Companies involved in transformative mergers were excluded. This gives the companies and analysts time to normalize their financial figures again before determining dividend safety. We also only included four utilities companies, which typically pay very high dividends, since this would have otherwise skewed our results largely towards that sector alone. As a final screen, we required that stocks possess upside potential from sources other than dividends, based on Thomson Reuters’ consensus one-year price targets for each company.

These are the highest-yielding dividends that are actually safe to hold.

1. FirstEnergy
> Dividend yield: 6%
> Annualized dividend: $2.20
> Share price: $36.93
> P/E ratio: 12.1

Utility company FirstEnergy Corp.’s (NYSE: FE) operations are currently providing a dividend yield of 6% to investors. At a share price of $36.93, its expected earnings per share of $3.00 generates a P/E ratio of just over 12. The consensus analyst price target is $40.03, and shares have traded in a range of roughly $35.46 to $46.77 over the past 52-weeks. FirstEnergy has a market value of $15.4 billion, and the company is expected to pay out 73% of its earnings to shareholders as dividends.

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2. AT&T 
> Dividend yield: 5.3%
> Annualized dividend: $1.80
> Share price: $34.06
> P/E ratio: 13.7

AT&T Inc. (NYSE: T) pays the highest dividend of the DJIA and manages to rank second in our large-cap safe dividends screens for the S&P 500. Its dividend yield is 5.3% and its expected P/E ratio is 13.7 for the year. The telecom giant is looking to have earnings growth in 2013 and 2014, and its $34.06 share price compares to a 52-week range of $32.71 to $39.00 and a consensus price target of $37.42. The company pays out just under 73% of its earnings as dividends. AT&T is worth roughly $180 billion in market value. Rival Verizon Communications Inc. (NYSE: VZ) was eliminated from this screen as it is in the midst of absorbing Vodafone’s share of Verizon Wireless following the largest corporate bond offering of all time.

3. Entergy
> Dividend yield: 5.2%
> Annualized dividend: $3.32
> Share price: $63.68
> P/E ratio: 12.9

Entergy Corp. (NYSE: ETR) is in the business of electric power production and retail electric distribution, and it comes with a 5.2% dividend yield. Its P/E ratio for 2013 is 12.9. Its shares are currently trading at $63.68, and its consensus analyst target price is $67.42. Shares have traded in a range of $61.09 to $72.98 over the past 52 weeks. The company pays out just over 67% of its expected earnings, which is more than manageable for these high dividend stocks.

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4. Reynolds American
> Dividend yield: 5.1%
> Annualized dividend: $2.52
> Share price: $49.22
> P/E ratio:15.2

Reynolds American Inc. (NYSE: RAI) managed to beat Altria Group Inc. (NYSE: MO) for the safest of the tobacco dividends because Altria pays more than 80% of expected earnings as dividends and Reynolds pays about 78%. Currently trading around $49, it has a consensus analyst price target of $49.67, versus a 52-week range of $39.70 to $52.93. Reynolds also trades with an expected P/E ratio of 15.2 and has a market value of more than $26 billion.

5. Southern Company
> Dividend yield: 4.9%
> Annualized dividend: $2.04
> Share price: $41.28
> P/E ratio: 15.1

Southern Company (NYSE: SO) is another public electric utility company, and it comes with a 4.9% dividend yield and a market value of roughly $36 billion. It has a consensus target price of $45.88 and has traded in a range of $40.63 to $48.74 over the past year. The company is expected to pay out 74% of its income as dividends, and its current year P/E ratio is 15.1.

6. American Electric Power
> Dividend yield: 4.5%
> Annualized dividend: $1.96
> Share price: $43.72
> P/E ratio: 13.9

American Electric Power Co. Inc. (NYSE: AEP) is a diverse electric power utility operator. The company has been extremely shareholder-friendly when it comes to lobbying in Washington, D.C. Its market value is $21 billion and it comes with a healthy dividend yield of 4.5%. Trading at $43.72, its 52-week range is $40.56 to $51.60 and its consensus price target is up at $49.35.

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7. ConocoPhillips
> Dividend yield: 3.9%
> Annualized dividend: $2.79
> Share price: $70.04
> P/E ratio: 11.9

ConocoPhillips (NYSE: COP) is now well past its spin-off of Phillips 66 (NYSE: PSX) and is the king of oil and gas companies when it comes to pure dividends. Its market value is more than $85 billion and it pays investors a current dividend yield of 3.9%. At $70.04, it is trading close to the consensus analyst price target of $70.54. It is also close to the top of its 52-week range of $53.95 to $71.09. Its current year P/E ratio is 11.9, and what really stands out is that the 3.9% dividend yield represents only 48% of earnings.

8. Intel
> Dividend yield: 3.9%
> Annualized dividend: $0.90
> Share price: $22.83
> P/E ratio: 12.2

Intel Corp. (NASDAQ: INTC) is the world’s leader in semiconductor processors and also the leader in technology dividends with a 3.9% yield. Currently trading at $22.83, its consensus analyst price target is $23.69, its 52-week trading range is $19.23 to $25.98, and its market cap is close to $114 billion. This $0.90 dividend per share comes to a payout ratio of about 48% of earnings. The processor giant may have even become a great stealth value stock if several recent analysts estimates are accurate. Intel’s P/E ratio is fairly low at 12.2.

9. Eli Lilly
> Dividend yield: 3.9%
> Annualized dividend: $1.96
> Share price: $50.67
> P/E ratio: 12.2

Eli Lilly and Co. (NYSE: LLY) is the highest-paying safe pharmaceutical dividend, with a 3.9% yield. Currently trading at $50.67, it has a market cap is close to $55 billion, a 52-week range of $44.88 to $58.40 and a consensus analyst price target up at $57.56. Because earnings estimates are fluctuating wildly for 2013 ($4.14 EPS) versus 2014 ($2.77 EPS) and from 2012 ($3.39 EPS), we are using the 2014 calculation for the payout: a $1.96 annualized payout is about 71% of earnings.

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10. Merck
> Dividend yield: 3.6%
> Annualized dividend: $1.72
> Share price: $48.74
> P/E ratio: 14.0

Merck & Co. Inc. (NYSE: MRK) is another safe dividend in pharmaceuticals, with a 3.6% dividend yield. The drug giant is worth more than $142 billion. Merck’s share price of $48.74 compares to a consensus analyst target of $51.79 and a 52-week range of $40.02 to $50.16. The $1.72 annualized dividend is only about 49% of earnings and the company has an expected P/E ratio of 14.

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