The saying “Sell in May and walk away” wasn’t always wise advice. This is particularly inconvenient for income investors who need to make their money work for them. Instead of selling stocks in May, income investors might be better off buying.
Fortunately, there are many good options to choose from, and many of them offer particularly high dividend yields. Here are my five favorite high dividend yield stocks to buy in May.
1. Ares Capital
Ares Capital (NASDAQ:ARCC) is perhaps the least known of my selection. However, anyone who is familiar with SME financing probably knows the company well. It is the largest publicly traded business development company (BDC) offering financing solutions to medium-sized companies.
The dividend yield is currently just under 9.3%. Ares Capital is able to pay such a high dividend because it continues to generate high profits. Unlike some extremely high-yield dividend stocks, the company wasn’t forced to cut its dividend.
I like Ares Capital’s diversified portfolio and its risk management strategy that reduces the risk of losing money when investing. What I like most is the company’s track record of delivering greater total returns than that S&P 500.
2. Chevrons
Warren Buffett didn’t buy many stocks. However, Chevron (NYSE:CVX) was among the three stocks he added to Berkshire Hathaway‘s share in the fourth quarter of 2023.
I don’t know if Buffett will buy Chevron this month, but I think income investors should seriously consider it. The giant oil and gas producer offers a dividend yield of nearly 4% and has increased its dividend for an impressive 37 consecutive years.
Buffett recognizes that oil and gas demand is more likely to rise than fall over the next decade and beyond, even as the use of renewable energy sources increases. No doubt he also supports Chevron’s investments in carbon capture technology. These factors, along with the attractive dividend, make this oil stock one of my favorites right now.
3. Enterprise Product Partners
While Chevron is a household name, there is another great choice for the energy sector – Enterprise Products Partner (NYSE:EPD) — is not. However, Enterprise is a major player in the North American midstream energy industry with more than 50,000 miles of pipelines, natural gas processing facilities and other assets.
Enterprise Products Partners’ sales return on investment is over 7.3%, and the partnership has increased its sales for the 25th consecutive year. I’m not talking about nominal growth either. Corporate sales have increased at a compound annual growth rate of approximately 7%.
The company has a strong balance sheet with solid credit ratings. The company is also investing in the construction of new pipelines and a liquid natural gas export facility, which should boost growth in the future.
4. Pfizer
Some may think Pfizer‘S (NYSE:PFE) The dividend is the only thing going for the big drugmaker these days, as the dividend yield of nearly 6.6% is great. Pfizer’s commitment to increasing its dividend is also reassuring for income investors.
However, another important plus point is the company’s valuation. The stock trades at a forward earnings multiple of just 11.6. This low valuation could be justified if Pfizer’s revenue and profits continue to decline as they have in recent years. But I see a light at the end of Pfizer’s dark tunnel.
The company has been remarkably successful in obtaining regulatory approvals for new products and has made some smart acquisitions. I expect these efforts to produce solid total returns over the remainder of the decade.
5. Verizon Communications
Investors were initially disappointed Verizon Communications‘ (NYSE:VZ) Q1 results. However, they quickly discovered that the telecom giant’s quarter wasn’t so bad after all. Importantly, the company’s free cash flow increased 17% year over year to $2.7 billion.
This news should be music to the ears of income investors who love Verizon’s sky-high 6.7% dividend yield. The company has increased its dividend for 17 consecutive years. This trend is likely to continue as Verizon continues to generate strong free cash flow.
Do I expect breathtaking growth from Verizon? No. However, the company’s business is doing well. The dividend payouts are juicy and should be safe. That’s enough to make Verizon a great high-dividend yield stock to buy in May.
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Keith Speights has positions at Ares Capital, Berkshire Hathaway, Chevron, Enterprise Products Partners and Pfizer. The Motley Fool has positions in and recommends Berkshire Hathaway, Chevron and Pfizer. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. The Motley Fool has a disclosure policy.
“My Top 5 Favorite High-Yield Dividend Stocks to Buy in May” was originally published by The Motley Fool