The 8 Best Dividend Stocks In May 2019: What To Buy Now

Caterpillar performed very well in 2018. For the fourth quarter, revenue increased 11% to $14.3 billion. Construction product sales rose 8%, while resource segment revenue increased 21% for the quarter. For 2018, revenue increased 20% while adjusted earnings-per-share soared 63%. Earnings-per-share of $11.22 set an annual record for 2018.

CAT Results


Source: Investor Day

This year should be another good one for Caterpillar. In the 2019 first quarter, revenue increased 5%, while earnings-per-share increased 19% to $3.25. Earnings-per-share hit a first-quarter record for the company. Sales in Energy & Transportation were flat for the quarter, while Construction Industries reported 3% segment sales growth, and Resource Industries sales increased 18%.

Going forward, Caterpillar will continue to benefit from positive economic trends, including steady GDP growth, supportive commodity prices, and a strong construction and housing market. The company also intends to pursue growth in services. Caterpillar expects to double its Machine, Energy & Transportation services sales to about $28 billion by 2026, from about $14 billion in 2016.

Caterpillar has accelerated its cash returns to shareholders. On May 2, Caterpillar raised its quarterly dividend by 20%. The company also stated its intention to raise the dividend over the next four years by at least a high-single-digit percentage rate. We further analyze Caterpillar’s dividend in the following video.

 With a forecasted dividend payout ratio of 29% for 2019, Caterpillar’s dividend is secure barring a deep and protracted recession. Absent a significant economic downturn, Caterpillar stock could generate impressive returns, due to a combination of the 2.7% dividend yield, 5% annual earnings growth, and a significant boost from valuation expansion.

Caterpillar stock trades for a price-to-earnings ratio just above 10x. Our fair value estimate is a price-to-earnings ratio of 15x, meaning expansion of the price-to-earnings ratio could add over 8% to Caterpillar’s total returns. This results in total expected returns slightly above 17% per year for Caterpillar over the next five years.

Best Dividend Stock #3: Eaton Vance (EV)

  • Dividend Yield: 3.7%

Eaton Vance is an asset management firm with a $4.4 billion market cap. Eaton Vance offers closed-end funds, mutual funds, term trusts, and exchange-traded funds under the NextShares brand. The company ended the most recent quarter with assets under management (AUM) of $445 billion.

The company’s AUM is diversified across various asset classes.

EV Assets


Source: Investor Presentation

In the 2019 first quarter, revenue of $406 million fell 3.3% from the same quarter a year ago. This revenue decline was partially due to declining assets, as consolidated AUM declined by 1%, primarily a reflection of stock market declines in the 2018 fourth quarter. The company also reported lower average management fees. Adjusted earnings-per-share of $0.73 also declined last quarter, by 6% from the $0.78 reported in the same period a year ago.

Eaton Vance’s competitive advantage lies in its appealing product offerings and low fees, which are allowing it to compete in an asset management industry experiencing significant fee compression. While most asset managers are experiencing net outflows due to the trend towards low-cost ETFs, Eaton Vance actually saw net inflows of $11.7 billion through the last four quarters.

Eaton Vance has a long history of dividend growth. The company has increased its dividend for 38 consecutive years, including a 13% increase in October 2018. Over that 38-year period, the company increased its dividend by 17% per year on average.

Eaton Vance stock is attractive valued, with a high dividend yield as well. The company is expected to generate earnings-per-share of ~$3.36 in fiscal 2019. Using this estimate, the company is trading at a price-to-earnings ratio of 11.4x. Eaton Vance traded at an average price-to-earnings ratio of 16x over the last decade.

If the company’s valuation can revert to a price-to-earnings ratio of 16x in five years, this will boost its returns by about 7.0% annually. Eaton Vance is expected to generate 6.8% annualized earnings growth and pays a dividend that yields 3.7%. Overall, we believe that Eaton Vance could deliver total returns of 17.5% per year over the next 5 years.

Best Dividend Stock #2: Walgreens Boots Alliance (WBA)

  • Dividend Yield: 3.3%

Walgreens Boots Alliance is a large pharmacy retailer, with over 18,500 stores in 11 countries around the world. It also operates one of the largest global pharmaceutical wholesale and distribution networks in the world, with more than 390 centers that deliver to nearly 230,000 pharmacies, doctors, health centers and hospitals each year. With 43 years of consecutive dividend increases, Walgreens is a member of the Dividend Aristocrats Index.

Walgreens has a secure dividend, which is elaborated on further in the video below.

 In early April, Walgreens reported (4/2/19) fiscal 2019 second-quarter results. Revenue of $34.5 billion increased 4.6% year-over-year, but adjusted EPS declined 5.4% for the quarter. Walgreens attributed the weak quarterly results to significant reimbursement pressure and worsening generic deflation. It also reduced its full-year outlook. The company now expects adjusted EPS to be roughly flat in 2019, versus previous expectations of 7% to 12% EPS growth.

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Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...

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