3 Dividend Stocks for May 2024

Income investors are typically focused on dividends, but they should also be concerned with generating high total returns over time. One way to do this is to focus on dividend stocks with low valuations.

Combining low starting valuations with dividends can generate high total returns over time. For this reason, income investors should also incorporate value investing into their process.

The following three stocks all pay dividends, and their expected returns above 10% annually over the next five years make them 3 of the best dividend stocks for May 2024.

3 Dividend Stocks for May 2024

Nike Inc. (NKE)

Nike is the world’s largest athletic footwear, apparel, and equipment maker and one of the most valuable brands in the world. Its offerings focus on six categories: running, basketball, the Jordan brand, football (soccer), training, and sportswear. Nike also owns Converse. 

In late March, Nike released (3/21/24) results for the third quarter of fiscal year 2024. Nike’s fiscal year ends on May 31st. Sales and direct sales remained essentially flat vs. the prior year’s quarter. Digital sales grew 3%. Gross margin expanded from 43.3% to 44.8% thanks to price hikes and lower freight costs, and earnings-per-share rose 24%, from $0.79 to $0.98, exceeding the analysts’ consensus by $0.23. 

Nike is hurt by the impact of inflation on consumers, which has caused high inventories. However, inventories decreased by 13% over last year’s quarter, declining for the third time after several consecutive quarters.

Nike recovered strongly from the pandemic but is now facing a double hit from inflation, lower margins, and lower consumer demand. Sustained margin improvement may prove hard in the future, but there is still ample room for revenue gains and share buybacks. China is likely to be the backbone of Nike’s growth. 

The company’s competitive advantage stems from its exceptional brand name and image worldwide. In addition, the company has developed hard-to-replicate distribution capabilities.

Nike has grown its dividend for the past 22 years, with an average annual growth rate of 12.3% during the last decade. The stock is a Dividend Contender. We expect a 14% average annual earnings-per-share growth over the next five years. With a current payout ratio of 39%, we expect the dividend to continue rising at a fast pace for years.

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PPG Industries (PPG)

PPG Industries is the world’s largest paints and coatings company. Its only competitors of similar size are Sherwin-Williams and Dutch paint company Akzo Nobel. With more than 50 years of consecutive dividend increases, PPG Industries is a member of the Dividend Kings. PPG Industries is our second best dividend stock in May 2024.

On April 18th, 2024, PPG Industries reported its first quarter results for the period ending March 31st, 2024. Revenue decreased 1.6% to $4.31 billion, $120 million less than expected. Adjusted net income was $441 million, or $1.86 per share, compared to adjusted net income of $432 million, or $1.82 per share, in the prior year. Adjusted earnings-per-share were in line with consensus estimates.

First-quarter organic revenue growth was lower by 2%, or 1% when excluding a large customer purchase in the prior year. Performance Coatings revenue fell 1% to $2.61 billion. Higher selling prices (+1%) and favorable currency exchange (+1%) only partially offset a decline in volume (-3%). As with prior quarters, aerospace demand was robust, with organic sales up by a mid-digit percentage. Protective and Marine coatings were up slightly, while Automotive refinish coatings were flat.

For 2024, the company expects organic sales to be higher by a low single-digit percentage and adjusted earnings-per-share from $8.34 to $8.59. At the midpoint, this would represent a 10.4% increase from the prior year.

On July 20th, 2023, PPG Industries raised its quarterly dividend 4.8% to $0.65, extending its dividend growth streak to 52 consecutive years. PPG stock currently yields 1.9%.

PPG stock also looks undervalued right now. The stock has traded with an average price-to-earnings ratio of 22.3X over the last decade. However, PPG shares are currently priced at 16 times the expected 2024 earnings-per-share. The combination of future EPS growth, P/E expansion, and dividends could generate total returns above 12% per year for PPG stock.

Accenture plc (ACN)

Accenture is an information technology company that offers consulting, technology, and outsourcing solutions. Its customers include communications and media companies, banks and other financial corporations, the healthcare industry, public services, consumer goods, retail, travel, and other industries. It is our third best dividend stock in May 2024.

The company recently released its fiscal second-quarter earnings. Revenue was $15.8 billion, 0.1% less than Accenture’s revenues during the previous year’s quarter. Accenture’s sales were flat in constant currencies. Accenture recorded new bookings of $21.6 billion, which suggests revenue growth will resume as the book-to-bill ratio was significantly above 1.0. 

The company earned $2.77 per share during the second quarter, which beat the analyst community’s estimate. The company forecasts organic revenue growth of around 2% for fiscal 2024 and earnings-per-share in a range of $11.97 to $12.20, representing growth of around 5% versus 2023.

Accenture grew its earnings-per-share by ~10% a year since 2010. Its growth has been primarily driven by organic revenue expansion. Except for a slight setback during the financial crisis, the company grew its top line every year. The most prominent customer groups are what it calls Product (consumer goods, travel industry, retail) and Financial Services. There is a lot of pressure on these industries to lower their costs and optimize their operations. This means there is a lot of demand for Accenture to help its customers in digital, cloud, and security services. 

ACN has increased its dividend for 13 consecutive years while the stock currently yields 1.6%.

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