My Top Dividend Stock For May
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As you've likely noticed in your portfolio, April has been a menace to the stock market, and had share prices all across the board diving deeper than Rick Winters.
Source: Finviz Heat Map
For us dividend investors, this is a dream come true. There’s nothing we love more than a good discount, and right now, you can throw a stone in practically any direction and hit one.
However, there is a Catch-22 to this. When the market is presenting you with all of these different opportunities, how do you decide which ones to hone in on?
I find myself facing that same issue as I write this email. There are no shortage of options to write about, but when in doubt, I opt for ol’ reliable, which in this case is Johnson & Johnson (JNJ).
Johnson & Johnson has an extensive history dating back to 1886 when three brothers—Robert Wood Johnson, James Wood Johnson, and Edward Mead Johnson—established the company, initially selling ready-to-use sterile surgical dressings.
Today, it proudly stands as one of the world’s most valuable companies and a global leader in the health care sector, exclusively dedicated to developing and producing pharmaceuticals and medical devices.
While Johnson & Johnson’s revenue growth has admittedly been on the slower side—at 0.97% on average over the past five years—its story is one of steady progress, and the bottom line has seen a much greater surge, growing by 22.5% on average in the same time period. This means that the company is becoming more profitable over time, and leaves its gross profit margin sitting just below 70% and its net income margin near 50%.
Moreover, Johnson & Johnson is at no risk of going bankrupt with a prime credit rating of AAA and a minimal net debt load of $7.5 billion—peanuts compared to the nearly $20 billion in free cash flow it generated last year.
Bolstering its strong financial position, the company reported its quarterly earnings earlier this month, delivering a solid year-over-year increase in both sales and earnings.
Source: Johnson & Johnson Earnings Presentation
However, this good news wasn’t enough to bring the share price back to life. In fact, Johnson & Johnson has slumped all year long with a 5.9% decline year-to-date and an 8.6% decline over the last year, which I think presents a good buying opportunity.
Fortunately, it's not just Johnson & Johnson that's trending in this direction. The entire healthcare sector is heading south, and even our top dividend stock from last month has plummeted over 10% in the last month alone.
Still, every cloud has a silver lining.
As share prices go down, dividend yields go up. As it applies to Johnson & Johnson, the dividend yield right now is over 21% higher than its five-year average. Reinforced by a remarkable 61-year dividend growth history—which was actually recently extended by another raise—Johnson & Johnson is the epitome of a SWAN (sleep well at night) stock.
As far as dividend stocks to buy in May, you could certainly do worse than Johnson & Johnson, and I look forward to swooping up some more shares at these discounted prices.
With that said, I want to hear from you: Which stocks do you have your eye on for this upcoming month? Write to me here and let me know.
And a big thank you to all of the readers who responded to last week's newsletter! You can read some of the responses down below in the "Hot Takes" section. 👇
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ICYMI 🎥
3 Deeply DISCOUNTED Dividend Stocks To Buy In May
We dividend investors can’t resist a good deal, and right now there are so many different ones to choose from. In this video, we’re talking about 3 stocks that look like particularly great pickups for your portfolio as we make our way into May.
CAREFULLY CURATED 🔍
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📚 The Best REITs to Buy Right Now - As the likelihood of interest rate cuts diminishes, so do the share prices of real estate investment trusts. This is Morningstar's list of seven undervalued REITs that are currently trading at deep discounts.
SINCE YOU ASKED 💬
"If I only have $200 to invest every month, would you advise to continue dividend investing or just dollar cost average in the S&P 500?"
- Ben | Email submission
If you only have $200 to invest every month, investing in both dividend stocks and in the S&P 500 can be viable strategies.
Which approach is better is less about the amount of money you have to invest and more about which strategy aligns with your financial goals, timeline, and risk tolerance. It also depends on how hands-on you want to be in your portfolio.
Overall, if you're just getting started with investing, I think it's best to keep it simple and just invest in ETFs. I personally dollar cost average into both SCHD (a dividend focused ETF) and VOO (an S&P 500 ETF) every week, and I think something like that is an easy strategy to stick to that gives you the best of both worlds.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers which discounted dividend stocks they've been buying. Here are some of the responses:
Rommuel said: Bought UNH at $454.43. Great addition to my portfolio!
Pat M. said: I'm looking at THE monthly dividend company, O, and also EPD. EPD is up this year but has had a big pullback the past ten days. Also considering Arbor Realty (ABR), which would go against my rule to not invest in companies whose business model I can't understand, but my dad owns it and has collected those sweet 13% dividends for over a year. ABR seems impervious to fatal news, interest rates, or natural disasters.
Pat S. said: I purchased JNJ and O this week. I just wish I had more to invest!
Robert said: I have been loading up on JNJ and SBUX as well. They are now my 2nd and 3rd largest positions after O. I'm also expanding my stake in HSY and I currently have my eye on MDT. If it will drop another 5-10% I will consider averaging down a bit.
David said: I’m personally buying more SBUX and V. I am DCAing weekly into these two.
LAST WORD 👋
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