3 Dividend Stocks for May 2024

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

3 Dividend Stocks for May 2024

1. ExxonMobil XOM
2. McDonald’s MCD
3. Pfizer PFE

First up this month is ExxonMobil, the largest US energy company, which receives a narrow economic moat rating from Morningstar equity analysts. Full disclosure: This is a stock I own in my personal portfolio. At this point, Exxon’s recent dividend story is well known: The company relied on its balance sheet to avoid a dividend reduction in 2020, but its subsequent dividend growth has been modest, at 2.6% annualized over the past five years. But Exxon’s raise for its last payout of 2023 was a more substantial 4.4%. The stock currently trades at around a 12% discount to its fair value estimate and yields 3.2%, well below the 5.2% yield the stock has averaged over the past five years, as the share price has appreciated considerably in recent years. Morningstar analysts believe the current dividend is secure, even if commodity prices are lower than they anticipate, but they also expect to see more cash returned via buybacks than dividends, given the greater flexibility they afford.

Like Exxon, wide-moat McDonald’s is a dividend aristocrat, as it has raised its annual dividend payout for 47 consecutive years, including a 9.9% increase for its final payout of 2023. However, long streaks of annual dividend increases don’t always result in high yields, as the stock, which trades for a 12% discount to its fair value estimate, currently yields 2.4%, modestly above the 2.2% it has averaged over the past five years. The company’s dividend growth stands at 8.3% annualized over the past five years, but future growth may be higher: Morningstar analysts expect the dividend to grow at a low-double-digit clip over the next three years, with a payout ratio of 50%–60%.

Last up this month is Pfizer, which I also hold in my portfolio. Pfizer’s dividend growth over the past five years has been modest, at 3.8% annualized, but there’s been a significant increase in the stock’s yield over the past year, primarily due to the downward trajectory of the share price. A year ago, the stock yielded 4.3%, a figure that has since increased to 6.6%. Morningstar analysts forecast continued modest dividend growth, with the current annual dividend of $1.68 increasing to $1.78 by the end of 2028. In December, Morningstar analysts reduced their fair value estimate to $42 per share from $47 based on Pfizer’s lower-than-expected guidance for 2024. But they also noted that the firm reiterated support for the dividend, which the analysts believe is secure. The stock currently trades at an almost 40% discount to its fair value estimate.

I’m David Harrell from Morningstar DividendInvestor. Thanks for watching, and we’ll see you next month.

Watch 3 Dividend Stocks for April 2024 for more from David Harrell.