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5 Top-Performing Dividend Stocks to Buy in May

Tirthankar Chakraborty
BancorpSouth (BXS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Future estimates for stock market returns are at the lowest since the financial crisis due to overvaluation, increased inflationary pressure leading to rate hikes and telltale signs of a collapse in global growth. This perhaps explains why the latest round of encouraging earnings news failed to excite investors.

Broader markets, in fact, see meager returns in the May-October period, thanks to lower trading volumes in summer, while the November-April period witnesses a substantial increase in investments. To top it, Mays during midterms tends to be worse, as is the case this year.

In the wake of this, investing in companies that pay consistent dividends can make for wonderful investments. Such companies are financially stable and mature, and can even generate steady cash flow irrespective of market conditions.

Dampening Outlook for Returns

The outlook for returns from U.S. stocks, which have been on an extensive bull run, is pretty unwelcoming. Expectations for returns are now at an 11-year low, according to Morgan Stanley MS. The financial holding company cited changing monetary policy and slowdown in global growth as the primary factors hurting returns.

The Fed’s low rates and bond buying program helped markets move north over the past decade. But, the central bank is gradually altering its monetary policy by hiking rates and streamlining the balance sheet. A hawkish Fed coupled with an uptick in prices of essential commodities is a potential deterrent for stocks. Increased oil prices and business houses saying that the cost of steel and several other raw materials are increasing in the United States have induced inflationary fears. Investors also continue to fret about the likelihood of an inverted yield curve that has been viewed as an indicator of a pending economic recession.

Many market participants are spotting cracks in synchronized global growth raising fears of a stagflation. This is a situation that mostly occurs at times of high inflation and unemployment along with weak economic demand. Maybe, the concern of a slowdown in global economic growth has cast a shadow on the quarterly results of U.S. corporations. Major bourses have been trading in a tight range for the last three months, with the Dow and the S&P 500 currently in their longest stretch in correction territory in a decade.

Stocks Trade at Tight Range Since February

The stock market trading in a tight range, in fact, shows that enthusiasm over equities has been dissipating. Only 32.7% of investors expect stock prices to be at a higher range in 12 months from now, per data by the Conference Board.

Stock valuations are already at multi-year highs raising questions as to whether the equity market has more room to scale higher. To top it, trading volumes have been unusually low, which indicates that investors are reluctant to participate.

Fear the Month of May

And how can we forget the adage “Sell in May and go away.” Historically, stocks have underperformed in the six-month period commencing May and ending in October, compared to the November to April period. Mostly lower trading volumes in the summer season and substantial increase in investment during the winter months are cited to be the reasons for this discrepancy.

In fact, May is traditionally bad in midterm election years, according to the Stock Trader’s Almanac. Since 1950, the Dow, the S&P 500 and the Nasdaq lost 0.7%, 0.9% and 1.2% on average during midterm years, respectively.

Buy 5 Top Dividend Stocks Now

With so many concerns plaguing investors’ minds, dividend paying stocks are tempting options at the moment. The best dividend stocks pay out a healthy yield and have strong prospects, and are less susceptible to market gyrations. Their large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer sizable yields on a regular basis, regardless of market direction.

While finding companies that offer these traits isn’t easy, they certainly do exist. To help you find these businesses, we have selected five dividend payers who have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Las Vegas Sands Corp. LVS develops, owns, and operates integrated resorts in Asia and the United States. The company has a Zacks Rank #1. Las Vegas Sands has a dividend yield of 4.1%, while its five-year average dividend yield is pegged at 4.2%. The Zacks Consensus Estimate for its current-year earnings rose 5.1% in the last 60 days. The company’s expected growth rate for the current quarter and year is 8.2% and 16.1%, respectively.

Compass Diversified Holdings LLC CODI is a private equity firm specializing in acquisitions, buyouts, industry consolidation, recapitalization, and middle market investments. The company has a Zacks Rank #2. Compass Diversified has a dividend yield of 9.3%, while its five-year average dividend yield is 8.4%. The Zacks Consensus Estimate for its current-year earnings rose 6.7% in the last 60 days. The company’s expected growth rate for the current and next quarters are 193.1% and 188.7%, respectively.

Seagate Technology plc STX provides data storage technology and solutions. The company has a Zacks Rank #1. Seagate Technology has a dividend yield of 4.4%, while its five-year average dividend yield is pegged at 5.3%. The Zacks Consensus Estimate for its current-year earnings rose 2.5% in the last 60 days. The company’s expected growth rate for the current quarter and year is 23.6% and 21.1%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Solar Capital Ltd. SLRC is a closed-end investment company that invests primarily in leveraged companies. The company has a Zacks Rank #2. Solar Capital has a dividend yield of 8.1%, while its five-year average dividend yield is 8.3%. The Zacks Consensus Estimate for its current-year earnings rose 0.6% in the last 60 days. The company’s expected growth rate for the current quarter and year is 12.8% and 9.9%, respectively.

BRT Apartments Corp. BRT is a real estate investment trust. The company has a Zacks Rank 2. BRT Apartments has a dividend yield of 6.6%, while its five-year average dividend yield is pegged at 0.8%. The Zacks Consensus Estimate for its current-year earnings rose 1.2% in the last 60 days. The company’s expected growth rate for the current year is a solid 26.9%.

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Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
 
Seagate Technology PLC (STX) : Free Stock Analysis Report
 
Compass Diversified Holdings (CODI) : Free Stock Analysis Report
 
Morgan Stanley (MS) : Free Stock Analysis Report
 
Solar Capital Ltd. (SLRC) : Free Stock Analysis Report
 
BRT Realty Trust (BRT) : Free Stock Analysis Report
 
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