3 Dividend Stocks for May 2023

David Harrell: Hi. I’m David Harrell with Morningstar Investment Management. In this monthly video series, we take a look at the dividend prospects of three stocks that are popular with income investors.

3 Dividend Stocks for May 2023

1. Dominion Energy D
2. JPMorgan Chase JPM
3. Realty Income O

First up this month is Dominion Energy, a predominantly regulated utility, based in Richmond, Virginia. Dominion currently yields an attractive 4.8%, but its five-year dividend-growth rate remains negative, following a 33% dividend reduction in late 2020. In February, the utility announced that its 2023 dividend rate would remain unchanged from 2022 at $2.67 per share. The dividend received a fair amount of discussion during the company’s Feb. 8 earnings call, with management committing to the current dividend and a return to a 65% payout ratio, saying it expected to achieve this goal without making a dividend cut. Given Morningstar analysts’ expectations for 2023 and 2024 earnings, I think it’s likely that investors will have to wait until 2025 for Dominion’s next dividend increase.

Next is JPMorgan Chase, one of the “big four” U.S. banks, which has been in the headlines for its recent acquisition of First Republic. Morningstar analysts believe the acquisition is a good deal for J.P. Morgan and could add an additional $500 million of annual net income. But while that’s a large number, it only represents about a 1% earnings in increase for the bank. The stock currently yields close to 3%, with 13.5% annualized dividend growth over the past five years. However, the dividend hasn’t been increased since the final payout of 2021. Morningstar analysts note that the capital allocation plan for JPMorgan Chase has generally been for roughly 30%–35% of earnings to be devoted to dividends, with the remaining 65% dedicated first to investing in the business and any leftovers used for repurchases. Following a year of minimal repurchases in 2022 as the bank built up its capital levels, they expect share repurchases to resume in 2023, along with the potential for a dividend hike. With a projected payout ratio of 29% for 2023, J.P. Morgan should have room for a modest dividend increase, which would likely be announced later in the second quarter, following the results of the annual stress tests that the largest banks are subject to.

Finally, in addition to paying a monthly dividend, Realty Income—a real estate investment trust that markets itself as the “The Monthly Dividend Company”—generally increases its dividend several times a year. It made four increases in 2022 and 2021, five increases in 2020, and there have been two increases so far in 2023. However, these raises are quite small, resulting in annualized dividend growth of 3.2% over the past five years. The REIT currently yields 4.9%. While the attractiveness of any dividend-paying stock increases as the share price decreases (thereby boosting the investor’s yield on cost), given that Realty Income’s dividend-growth rate is likely to remain low, the purchase price and discount become a large consideration, as is the case with the other two stocks featured this month.

I’m David Harrell with Morningstar Investment Management. Thanks for watching, and we’ll see you next month.

Watch “3 Dividend Stocks for April 2023″ for more from this series.