David Harrell: Hi, I’m David Harrell, editor of the Morningstar DividendInvestor newsletter. In this monthly series, we take a look at the dividend prospects of three stocks that are popular with income investors.
3 Dividend Stocks for May 2025
Brown-Forman BF.BChevron CVXRealty Income O
Brown-Forman, producer of bourbons and whiskeys, including Jack Daniel’s, is a dividend aristocrat with 41 consecutive years of annual dividend increases. The stock currently yields 2.6%, with 5.5% annualized dividend growth over the past five years. In addition to its regular quarterly dividend, Brown-Forman has occasionally paid out special dividends at year-end that have exceeded the annual total of the regular dividend, though it hasn’t done so since 2021. Morningstar analysts address this in their assessment of the company’s dividend prospects, noting that over the next 10 years, they expect dividend payments to grow steadily alongside earnings, with a payout ratio stabilizing around 47%. As for the special dividends, they note that they have no visibility into the timetable for such payouts, so they don’t include them in their model.
While they believe that tariffs, if enacted at the rates announced on April 2, could pressure sales and margins, they point out that Brown-Forman benefits from an exemption for tequila imports from Mexico. Also, the European Union could impose retaliatory tariffs on US whiskey, though Brown-Forman’s sales exposure to the region is relatively low. The stock currently trades at more than a 30% discount to its $52 Morningstar fair value estimate.
After its latest dividend increase declared in conjunction with fourth-quarter results at the end of January, the stock of Chevron, another dividend aristocrat, yields 5.0%, above its five-year average of 4.4%, with 6.5% annualized dividend growth over the past five years. In assessing the energy firm’s financial strength, Morningstar analysts note that Chevron makes maintaining and increasing the dividend a priority and that they expect steady growth during the next few years as free cash flow rises. They believe that Chevron has reduced its breakeven level so that free cash flow allows for dividend growth and repurchases at $50 per barrel oil prices, implying that it has ample cushion if oil prices fall below that. Further, they note that Chevron could take on debt to defend the dividend given its low leverage. The stock currently trades for around a 10% discount to its fair value estimate.
Realty Income, a real estate investment trust, is also a dividend aristocrat and one that pays a monthly dividend. In addition, it generally makes three or four dividend increases each year. Now, these raises are usually modest in size. The REIT’s five-year dividend growth stands at 2.9% annualized, but the stock currently yields 5.6%. As a REIT, Realty Income is required to pay out 90% of its income as dividends, and Morningstar analysts note that the current dividend rate is easily covered by cash flow from operating activities. They believe that Realty Income should be able to continue to grow the dividend while maintaining a payout ratio that equals around 80% of adjusted funds from operations. While Realty Income receives a no-moat rating, its stock trades at close to a 24% discount to fair value, placing it in 5-star territory.
I’m David Harrell for Morningstar DividendInvestor. Thanks for watching. We’ll see you next month.
Watch 3 Dividend Stocks for April 2025 for more from David Harrell.
The author or authors do own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.