As I'm writing this blog post, it's mid-April. My 25th birthday was also just a few days ago, so I'm now closer to 30 than I am to 20. Every year seems to be flying by faster than the previous!
With that aside, it will be May before we know it. This is why I will be sharing three dividend stocks at the top of my watch list for May 2022.
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Dividend Stock #1: FedEx (FDX)
The first stock that I am considering adding to my portfolio in May is FedEx (FDX). The transportation company is among the largest in the world alongside its peer United Parcel Service (UPS), which is currently in my portfolio.
FDX looks like a fundamentally strong stock. This is because FDX's long-term growth prospects are closely linked to e-commerce.
With global e-commerce sales expected to grow from $4.9 trillion in 2021 to $7.4 trillion by 2025, there will undoubtedly be many more packages for FDX to ship. This should translate into growing revenue and earnings. And it explains why analysts expect the stock's earnings to grow at 19% annually through the next five years.
FDX also offers investors a market-beating 1.5% dividend yield. Assuming $21 in midpoint adjusted diluted EPS for the current fiscal year and a dividend per share obligation of $3, FDX's adjusted diluted EPS payout ratio will be just 14.3%.
And at the current price of $204 a share (as of April 18, 2022) the stock is criminally undervalued with a trailing-twelve-month (TTM) P/E ratio of just 10.7. For context, this is approximately half of its 10-year median of 20.8.
Dividend Stock #2: Cummins (CMI)
The next stock that I'm considering adding to my position in next month is Cummins (CMI).
The U.S. economy runs on trucks and that's no overstatement. Trucks are responsible for moving 72% of all goods consumed in the U.S. And CMI is the company behind the engines and other components that make those trucks reliably operate to keep the economy flowing.
An investment in CMI is a bet that the company will be able to pivot from diesel-operated engines and components to alternative energy engines and components like electric. Like myself, analysts appear to be confident that the company will do so. That's because it's anticipated that CMI's diluted EPS will compound at an 11% annual rate over the next five years.
With a diluted EPS payout ratio of 38.3% in 2021 ($5.60 in dividends per share paid divided by $14.61 in diluted EPS), CMI's dividend has the flexibility to continue growing. And better yet, the stock offers a market-topping 2.9% dividend yield.
Best of all, CMI can be purchased at a TTM P/E ratio of 13.5. This is slightly lower than the 10-year median of 15.4, which makes the stock a solid value.
Dividend Stock #3: Leggett & Platt (LEG)
The third stock that I'm thinking about adding to in May is Leggett & Platt (LEG). In a nutshell, my reasons for wanting more LEG in my portfolio are its record revenue and earnings in 2021, the well-covered and market-crushing yield, and deep undervaluation.
For a detailed and recent analysis on why I'm bullish toward LEG, I'd refer interested readers to my Motley Fool article published on the stock earlier this month.
Looking ahead to May, I expect to have nearly $3,000 of capital available for investment. Unless more of the remaining stocks on my master list that I don't already own become attractive, I will be primarily building up my existing positions rather than starting new ones.
Are any of FDX, CMI, or LEG on your watch list for May 2022?
If not, what stocks are you considering for the month?
Thanks for reading. I look forward to your comments below!
I like LEG. Hard to ignore the current yield. Been in my portfolio for a while now with no plans to sell. Thanks for sharing your picks.ReplyDelete
My pleasure and thanks for commenting. LEG is a dividend growth stock with a market-crushing yield and moderate growth potential to boot. It's definitely hard to go wrong buying at the current valuation as well.ReplyDelete
I'm with you on CMI although it looked much better at that 3.0% initial yield. Hoping to see some more market volatility to push that yield back up to the 3.0% level although I'll probably start buying before then.ReplyDelete
Thanks for commenting. I just added a share at just under 2.9% yield today, but CMI would really be great at a 3% yield.ReplyDelete