The power of stocks growing their dividends can’t be overstated.
Hence, the craze over the S&P 500 Dividend Aristocrats, which are stocks that have upped their dividends for 25 consecutive years or more. The ProShares S&P 500 Dividend Aristocrats ETF (NYSEArca: NOBL), which tracks these elite dividend payers, has outperformed the S&P 500 over the last year. But it goes deeper than that, as dividend growers have a proven ability to beat the market over the long term.
Ned Davis Research put together a study that looked at stock performance from 1972 to 2010. It noted that stocks within the S&P 500 that were growing their dividends posted annualized gains of 9.3%. Meanwhile, the entire S&P 500 posted an average annualized return of 7%, and non-dividend paying stocks posted a measly 1.3% gain.
With that in mind, here are the top five stocks upping their dividends in May:
No. 1 Dividend Increase for May: Xilinx (NASDAQ: XLNX)
Xilinx is one of the more underrated players on our monthly dividend list. Its dividend yield is a hefty 2.9%, and it has a modest streak of four straight years of dividend increases. Next month it’s upping its quarterly dividend by 7% to 31 cents a share.
Xilinx operates as a tech company, but there’s much more to this $11 billion market cap player. Its core business involves developing programmable chips, and its market share in this segment is upwards of 50%.
The market for programmable devices is still relatively small. It only makes up 2% of a $300 billion semiconductor industry which is dominated by application-specific chips. That leaves plenty of room for Xilinx to grow.
The rapid build out of wireless networks is also changing the smartphone industry in a positive way for Xilinx, as the communications infrastructure requires the premium chips that it manufactures.
Shares trade ex-dividend May 11.
No. 2 Dividend Increase for May: TJX Companies (NYSE: TJX)
Dividend-wise, TJX has an underrated streak of 18 years of consecutive dividend increases. Its dividend yield of 1.3% doesn’t seem like much, but its payout ratio is a mere 25%. Next month, TJX is upping its quarterly dividend by 20% to 21 cents a share.
Business-wise, TJX needs no introduction. It operates well-known brands like T.J. Maxx and HomeGoods, and it has managed to garner a large following thanks to its appeal to cost-conscious shoppers. The stores have continued to do well even as employment strengthens, thanks to their ability to offer designer-type products.
Yet, if and when another recession hits, TJX will continue to thrive. It posted same-store sales growth back in 2009, when the rest of the industry was struggling. The retailer was also growing during the recessions of the early 1990s and early 1980s.
Let’s not forget its strong balance sheet, where it has more than enough cash to cover its debt.
Shares trade ex-dividend May 12.
No. 3 Dividend Increase for May: Autoliv (NYSE: ALV)
Autoliv is another underrated player on our list, with a $10 billion market cap. It’s a developer of auto safety systems, including airbag modules. So the steady surge in auto sales is a big positive for the company.
One tailwind is the rising strictness of safety standards to get a five-star crash test rating. This means that companies will have to continue to upgrade their systems using Autoliv’s safety features. The next leg of growth for Autoliv could live in emerging markets. As these economies become wealthier, the demand for safety products and content in vehicles should rise.
Autoliv is paying a 1.9% dividend yield, and it has upped its annual dividend for five straight years. What’s more is that its payout ratio is just 35%. Come May, Autoliv is upping its dividend by 4% to 56 cents a share.
Shares trade ex-dividend May 18.
No. 4 Dividend Increase for May: CSX Corp. (NYSE: CSX)
Railroad companies continue to be great businesses. They continue to be less expensive than trucking and more fuel-efficient. Another key advantage to rails, from an investment perspective, is their economic moats.
CSX has strong geographical coverage with its rail network and track infrastructure. It mainly competes with Norfolk Southern Railway in the eastern part of the U.S. However, its rail network spans farther north to south than Norfolk Southern’s, as CSX is able to connect all the way from New England to Florida.
This geographic advantage should help keep CSX’s 1.9% dividend yield intact for many years to come. The rail company is also only paying out 35% of its earnings via dividends, and it has upped its annual dividend for five straight years. It will be upping its quarterly dividend by 12.5% next month to 18 cents.
Shares trade ex-dividend May 27.
No. 5 Dividend Increase for May: Goldman Sachs (NYSE: GS)
Goldman Sachs’ dividend yield is 1.3%, and it has a modest three-year streak of consecutive annual dividend increases. But the beauty is that it’s paying out just 14% of earnings via dividends. It’s upping its dividend by 8% next month to 65 cents a share.
Goldman Sachs operates a bit of a different business model than some of the other big banks. It’s a leading merger and acquisition advisor, which has helped the bank outperform most of its competitors in the financials space. Shares of Goldman Sachs are up 25% over the last year, while the likes of Wells Fargo (NYSE: WFC) and JPMorgan (NYSE: JPM) are up 14% each.
Given the current low interest rate environment, we should continue to see an elevated level of buyouts and mergers, which is good news for Goldman Sachs. Meanwhile, its 12% return on equity is also one of the best in the industry. The big bank quarterly earnings from just the other week also showed that Goldman Sachs is a step above the competition.
Shares trade ex-dividend May 28.
Dividends for Every Month of the Year
If you’re looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year.
Click here to see the full details of this company in my Dividend Calendar…