Top Dividend Stocks for May 2017
Finding dividend stocks for an income portfolio can be tough job in today’s market. Prices of the most solid dividend payers seem to have already been bid up. Moreover, interest rates have been increasing. Is there still a way for income investors to find a decent return under current market conditions? Well, in this article, we are going to take a look at the five best dividend stocks to consider in May 2017.
The keywords here are not “dividend yield;” there are plenty of dividend stocks with attractive yields. But note that a company’s dividend yield moves inversely to its price. Sometimes, markets can be efficient. If investors believe a company is going to cut its dividend soon and a sell-off starts, they could make the company’s yield rise. Would that company be a good choice for income investors? Not really.
That’s why we are going to focus on dividend growth rather than dividend yield. Whether it’s increasing interest rates or rising inflation, if a company can keep growing its business and dividends accordingly, income investors don’t have to worry about the macro environment all that much. With that in mind, let’s take a look at the top five dividend stocks to watch in May 2017.
List of Top Dividend Stocks for May 2017
| Company Name | Ticker Symbol | Dividend Yield |
|---|---|---|
| Cracker Barrel Old Country Store, Inc. | CBRL | 2.83% |
| Clorox Co | CLX | 2.38% |
| General Mills, Inc. | GIS | 3.31% |
| Northrop Grumman Corporation | NOC | 1.45% |
| Medical Properties Trust, Inc. | MPW | 7.08% |
1. Cracker Barrel Old Country Store, Inc.
Restaurant stocks are far from being a market favorite these days, but that doesn’t mean income investors should ignore them. For instance, Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) could be setting up to deliver some delicious returns.
Cracker Barrel Old Country Store operates a chain of combined restaurant and gift shops with a Southern country theme. Founded in 1969, the company opened its first store in Lebanon, Tennessee. Today, it operates 641 company-owned Cracker Barrel locations and four company-owned Holler & Dash Biscuit House locations in 43 states.
Cracker Barrel is a dividend-paying company. With a quarterly dividend rate of $1.15 per share, it has an annual dividend yield of 2.83%.
While the yield alone may not look that impressive, the company’s payout has seen substantial increases in recent years. Since 2012, Cracker Barrel’s quarterly dividend rate has increased 360%. (Source: “Dividend History,” Cracker Barrel Old Country Store, Inc., last accessed April 26, 2017.)
If you have been following the restaurant industry for the past several years, you would know that not all restaurants were doing that well. Even some of the most established chains have experienced year-over-year declines in comparable-store sales.
That’s where Cracker Barrel really stands out. According to its most recent earnings report, the company’s comparable-store restaurant sales increased 1.3% year-over-year in the three months ended January 27, 2017. This marked the company’s 11th consecutive quarter of positive comparable-store restaurant sales. (Source: “Cracker Barrel Reports Results for Second Quarter Fiscal 2017 and Reaffirms Earnings Guidance for Fiscal 2017,” Cracker Barrel Old Country Stores, Inc., February 21, 2017.)
The best part is, this solid performance allowed Cracker Barrel to reward shareholders with special dividends. The company paid a $3.00-per-share special dividend in August 2015, and another $3.25-per-share special dividend in July 2016.
Cracker Barrel is expected to review its dividend policy in the next month or two. With business going great, the company could have some good news for income investors.
2. Clorox Co
Clorox Co (NYSE:CLX) has been an income investor for quite some time. Starting with its original liquid bleach product “Clorox” in 1913, the company has been around for over a century. Today, it is a multinational manufacturer and marketer of consumer and professional products. Other than its namesake bleach and cleaning products, Clorox’s portfolio also consists of “Pine-Sol” cleaners, “Poett” home care products, “Glad” bags, wraps, and containers, “Kingsford” charcoal, and “Brita” water filtration products, among many others.
These are not products that people get excited about. However, many of them are necessities, which means Clorox is essentially running a recession-proof business. Moreover, Clorox has well-established positions in markets it operates in. More than 80% of the company’s sales come from brands with either number-one or number-two market share positions in their categories.
Paying $0.80 per share each quarter, Clorox stock has an annual dividend yield of 2.38%. While the yield is nothing to brag about, note that Clorox has raised its payout every year since 1977. Forty years of consecutive dividend increases make it one of the top dividend stocks in today’s market. (Source: “Dividend,” Clorox Co, last accessed April 26, 2017.)
Furthermore, despite being a century-old company, Clorox has been growing its business. Its net sales from continuing operations have increased from $5.51 billion in 2014 to $5.66 billion in 2015, and then to $5.76 billion in 2016. Diluted earnings per share from continuing operations also showed a similar growth pattern: $4.39 in 2014, $4.57 in 2015, and $4.92 in 2016. In the long run, the company is targeting sales growth of between three and five percent and free cash flow of between 10% and 12% of sales. (Source: “Investor Fact Sheet,” Clorox Co, last accessed April 26, 2017.)
The last dividend increase for Clorox was announced in May 2016. Given its rock-solid business, the company should have no problem announcing another dividend increase sometime this May.
3. General Mills, Inc.
General Mills, Inc. (NYSE:GIS) is a branded food company headquartered in Golden Valley, Minnesota. The company’s history can be traced all the way back to the Minneapolis Milling Company in 1856. Today, General Mills holds leading positions in many food categories worldwide and is also known as one of the top dividend stocks for income investors.
The company has a very strong brand portfolio, including names like “Cheerios,” “Betty Crocker,” “Pillsbury,” “Haagen-Dazs,” and “Cascadian Farm.” The company’s products are sold in more than 100 countries on six continents.
While the company is deeply entrenched in the branded food business, investors haven’t really warmed up to it recently. Over the past 12 months, GIS stock has actually slipped 4.6%. One of the reasons could be the ongoing health and wellness trend. As people become more health-conscious with what they eat, investors are concerned whether packaged meals, snacks, and ice cream will keep selling well.
General Mills’ most recent earnings report also shows mixed results. In the third quarter of the company’s fiscal 2017, ended February 26, reported net sales declined five percent year-over-year to $3.79 billion, with organic net sales also down five percent. This was mainly driven by reductions in the company’s North America Retail segment. (Source: “General Mills Reports Fiscal 2017 Third-Quarter Results,” General Mills, Inc., March 21, 2017.)
Meanwhile, operating profit for the quarter expanded 100 basis points to 16.9% of net sales. Adjusted earnings came in at $0.72 per share, representing an eight-percent increase in constant currency from the year-ago period.
So, where does that leave us? Well, General Mills’ business is doing okay, and it currently has a dividend payout ratio of 62.5%, which leaves a margin of safety. The company is expected to review its dividend policy soon. Despite some headwinds, a dividend increase could be in the works.
4. Northrop Grumman Corporation
With an annual yield of 1.45%, Northrop Grumman Corporation (NYSE:NOC) might not look like something you’ll find in a top dividend stocks list. However, if investors ignore this stock simply because of its less-than-stellar yield, they could be missing a big opportunity.
Northrop Grumman is a global aerospace and defense technology company that operates through three segments: Aerospace Systems, Mission Systems, and Technology Services.
Defense stocks had a huge rally towards the end of 2016, with the main driver being Donald Trump’s victory in the U.S. presidential election. With quite a few proposals designed to upgrade the U.S. military, President Trump’s victory is good news for defense contractors.
Northrop Grumman also enjoyed a nice rally since election night, but note that the stock was already traveling on an upward path. Over the past five years, its share price has surged 289%.
Furthermore, the company has been raising its dividends at an impressive pace. Back in 2007, Northrop Grumman was paying quarterly dividends of $0.37 per share. Today, its quarterly dividend rate is $0.90 per share. That means that Northrop Grumman has increased its per share payout by more than 140% over the past decade. (Source: “Stock Information – Stock Split & Dividend Info,” Northrop Grumman Corporation, last accessed April 26, 2017.)
The company also has solid financials to support those dividend increases. In 2016, Northrop Grumman generated $12.19 of earnings per share. So the $3.50 per share of dividends paid last year was just 28.7% of what it earned. The company has made four dividend payments at its current quarterly rate and is due for another review of its dividend policy. A sizable dividend increase is something Northrop Grumman investors can look forward to next month.
5. Medical Properties Trust, Inc.
Real estate investment trusts (REITs) can be powerful tools when it comes to boosting the yield of an income portfolio. They are required by law to distribute at least 90% of their taxable income to shareholders as dividend every year. Medical Properties Trust, Inc. (NYSE:MPW) is a REIT worth considering for income investors.
As the name suggests, Medical Properties Trust is a healthcare REIT. Its portfolio of properties includes acute care hospitals, inpatient rehabilitation hospitals, long-term acute care hospitals, and other medical and surgical facilities.
The company has a diversified portfolio. Its 247 properties, representing more than 27,000 licensed beds, are located in 30 states and in Germany, the U.K., Italy, and Spain. Moreover, Medical Properties Trust’ properties are leased to or mortgaged by 30 different hospital operating companies.
Healthcare REITs can be solid investments. However, if you have been following this company, you would know that the past year wasn’t really all sunshine and rainbows. One thing that affected Medical Properties Trust’s stock market appeal was the downfall of one of its tenants, Adeptus Health Inc (NYSE:ADPT). Adeptus is an emergency room operator. The tenant’s struggling situation has resulted in a sizable decline in the stock price of Medical Properties Trust, despite the fact that Adeptus only represented around seven percent of the healthcare REIT’s revenue.
Moreover, while Medical Properties Trust was dealing with the problem with one tenant, it did not forget its dividend obligations. As a matter of fact, the company also raised its quarterly dividend rate to $0.24 per share. This marked the third consecutive year in which the company raised its payout. (Source: “Medical Properties Trust, Inc. Increases Regular Quarterly Dividend by Four Percent to $0.24 Per Share,” Medical Properties Trust Inc, February 16, 2017.)
In recent months, MPW’s stock price has started to climb, but its dividend still looks attractive. With an annual dividend yield of 7.08%, the company is worth considering for investors searching for yield.