My Top 10 Dividend-Paying Stocks for May

Hispanolistic/E+ via Getty Images

There’s something exciting about dividends. Receiving this dividend payment in the mail or in your brokerage account reinforces the intent behind the investment by manifesting the outcome. He says, “Your capital has worked hard, here is your reward.”

Today I want to review last month’s picks and take a look at my top 10 dividend payers for May, including a closer look at a new top pick: EOG Resources, Inc. (EOG).

For a recap of the basics of dividend investing and my dividend-paying strategy, read last month’s article.

Here are my four dividend-paying goals:

  1. Maximize total return
  2. Offer a significant return
  3. Experience strong dividend growth
  4. Provide a safety margin against dividend cuts

Top 10 Dividend Payers for Dividend Reinvestment

Teleprinter name FWD dividend yield Score
1 WAY Medifast, Inc. 3.61% 5.6
2 EOG EOG Resources, Inc. 2.27% 5.0
3 CNS Cohen & Steers, Inc. 2.89% 4.8
4 MMM 3M Company 3.99% 4.7
5 PG The Procter & Gamble Company 2.34% 4.5
6 DEP Enterprise Products Partners LP 6.90% 4.3
7 ODA Air Products and Chemicals, Inc. 2.75% 4.3
8 TXN Texas Instruments Incorporated 2.75% 4.3
9 ITW Illinois Tool Works Inc. 2.33% 4.3
ten BSM Watsco, Inc. 3.43% 4.3

Top 10 dividend payers for retirees

Teleprinter name FWD dividend yield Score
1 WAY Medifast, Inc. 3.61% 5.8
2 EOG EOG Resources, Inc. 2.27% 4.8
3 DEP Enterprise Products Partners LP 6.90% 4.4
4 CNS Cohen & Steers, Inc. 2.89% 4.3
5 MMP Magellan Midstream Partners, LP 8.45% 4.2
6 SIMO Silicon Motion Technology Company 2.16% 4.2
7 MMM 3M Company 3.99% 4.1
8 AVGO Broadcom Inc. 2.83% 4.0
9 MDC MDC Holdings, Inc. 5.26% 4.0
ten TXN Texas Instruments Incorporated 2.75% 4.0

Compared to last month, Coterra Energy (CTRA) is out of both lists. It was effectively replaced by EOG. SIMO and GPC were removed from the reinvestment list, replaced by WSO and APD. TROW has been removed from the retired list, replaced by MDC.

I continue to be positively bullish on oil over the medium term. This is not so much due to inflation as to supply and demand fundamentals. I think the United States has entered another recession, so I expect energy demand destruction in the coming months.

In the meantime, the Brent chart shows a bullish pennant pattern which has now broken out and is back-tested. The technical model supports a price target of $140.

Map of Brent

Charts by TradingView (adapted by the author)

Supply remains very tight with stocks of gasoline, distillates and jet fuel at their lowest in 5 years. Overall, the global oil supply and demand deficit is close to 2.5 Mb/d, an almost record deficit. This is partly due to an increase in air traffic activity as the world weathers COVID.

Product storage - gasoline, distillate, jet fuel

The Daily Shot (used with permission)

OECD oil inventories are at their lowest in 7 years, although OECD oil consumption has fallen below the 7-year average. I’m watching the supply and demand data carefully to spot a change in trend, but one thing is certain: large producers are in no rush to increase capital spending to increase production capacity.

OECD oil stocks
Data by YCharts

Adding to the problem, the DXY US Dollar Index slumped from a rising wedge after a false break above long-term resistance. This suggests that the dollar is in an intermediate decline. This drop in the dollar is fueling the rise in oil prices in the short term.

US dollar currency index

The US Dollar DXY and Oil (Charts from TradingView (adapted by the author))

Production is slowly increasing to meet demand. Approvals for new drilling permits in the Permian have increased steadily since the start of the year. US crude oil production has also increased and is less than 1,500,000 bbl/day below pre-pandemic levels.

New drilling permit approvals per week in the Permian

New drilling licenses (The Daily Shot (used with permission))

US crude oil production

United States Crude Oil Production (The Daily Shot (used with permission))

What is of most concern is that economic data is deteriorating, forward-looking indicators point to slower growth and the end of the economic cycle seems near. The ISM manufacturing PMI in the United States has declined over the past year. Oil very often follows the PMI, but with a lag. The current situation looks very similar to 2008 when oil was rising against a falling PMI. Therefore, I will not be surprised if oil prices continue to climb for most of 2022. Going forward, however, the contraction in growth will have an impact on oil.

U.S. ISM Manufacturing PMI and WTI Crude Oil Spot Price
Data by YCharts

Adding EOG to the list caught my eye. The shares are trading at a price of 7.5x to the cash multiple of the trades. The company is expected to increase cash flow by 48% in 2022. EOG paid $4.61 per share in dividends in 2021 and is expected to pay $5.58 per share in 2022. Last week, the company announced a quarterly dividend of $0.75 per share plus a special dividend. of $1.80 per share.

Management is committed to providing 60% of free cash flow to shareholders. Assuming an average WTI price of $95 per barrel, management expects to deliver $4.8 billion to shareholders in 2022, or about 6.5% of market capitalization. The company has a strong history of dividend growth with 24 consecutive years without a dividend cut.

EOG Resources dividend

Seeking Alpha (company presentation)

Here’s what CEO Ezra Yacob had to say about the company’s stance on the latest earnings call:

Although we have earmarked and committed to return a minimum of 60% of annual free cash flow, our long-standing framework and priorities for total free cash flow are unchanged, a steady growing dividend, a clean balance sheet, additional cash return to shareholders through dividends and opportunistic share buybacks and low-cost property acquisitions. Maintaining and growing the regular dividend remains our top priority and reflects our confidence in the long-term performance of the business.

A clean balance sheet is a strategic advantage that works like a shock absorber that also provides the flexibility to exercise buy-back when the opportunity arises and leverage other counter-cyclical investments. Additional cash returns through special dividends and redemptions complement our other priorities and, together with our minimum available cash return guidance, support our goal of creating meaningful long-term shareholder value.

Summary

I keep an eye on EOG. I can buy on a major price correction, which could happen if the war in Ukraine ends. I would expect the trade to last 4-6 months, which is how long I expect oil prices to stay high. I still think $140/bbl WTI is the most likely target in 2022, but I continue to monitor the markets for macro changes. It is possible that oil has already peaked with growth.

Garland K. Long