In this article, we will take a detailed look at the 10 Dividend Stocks Insiders are Buying in May. If you want to skip our detailed analysis and see the top 5 stocks in this list, click 5 Dividend Stocks Insiders are Buying in May.
Following the Federal Reserve’s clear indication that it’s ready to keep interest rates elevated, dividend stocks are back in the limelight as investors pile into defensive, safe stocks to dig in for further volatility ahead. After all, historical data shows that dividend stocks account for a huge chunk of market returns. Since 1960 through 2016, dividend stocks brought in about 29% of the total returns of the S&P 500 index. But what kind of dividend stocks should investors prefer when interest rates are high?
Performance of Dividend Stocks When Interest Rates are High
According to a study published by ProShares, stocks with consistent years of dividend increases outperform those with high dividends but weak dividend growth record when interest rates are stable, high or low. From May 2005 through April 2015, the S&P 500 Dividend Aristocrats Index outperformed the Dow Jones U.S. Select Dividend Index when rates were high, low and stable. Preferring dividend growth stocks over high yielders has produced phenomenal returns over the past few years. The S&P 500 Dividend Aristocrats Index, which contains companies that have increased their payouts consistently for at least 25 years, is up about 48% over the past five years, while Dow Jones U.S. Select Dividend Index, which includes high-yield utilities dividend stocks, is up just 5% in the same period.
Dividend Stocks: Expectations in 2024
Analysts also believe dividend stocks are expected to perform well in 2024 as the market looks beyond Magnificent Seven stocks. Madison Funds in its Q1’2024 investor letter said that while its Madison Dividend Income Fund returned 3.7% in the first quarter, compared to SPY’s 10% gain, it could perform better in the year since sectors like Energy, Industrials and Financials are taking over leadership positions, replacing Technology. The letter said Madison Income Fund’s 49% of the portfolio is invested in Energy, Industrials and Financials. Another reason why the fund is bullish on dividend stocks is valuations:
“But the most important reason why we believe dividend stock performance may improve going forward is that dividend stocks are attractively valued compared to the broad market…..Some dividend funds are historically cheap vs. the S&P 500. The iShares Select Dividend exchange traded fund (DVY) is almost two standard deviations below its long-term average relative valuation compared to the S&P 500 over the past 20 years. Meaning, this level of relative valuation is well outside the norm. To quote the BofA Global Research report: “Dividend yield is unloved and cheap: active fund managers are massively underweight dividends after 2023’s credit scares. Valuations are attractive with some dividend funds trading 2-standard deviations cheap vs. the S&P 500.” Another key valuation metric we use is the relative dividend yield of the Dividend Income strategy compared to the S&P 500 and Russell 1000 Value indices. This is our preferred valuation metric, and we elaborate more on that below. As of quarter end, Dividend Income had a dividend yield of 2.84%, and a relative dividend yield of 2.1x the S&P 500 and 1.35x the Russell 1000 Value indices, which were the highest levels over the past 20 years. Our conclusion is that dividend stocks are historically cheap vs. the broad market, which we believe presents an attractive investment opportunity.”
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Dividend Growth Investing Shined in 2023 Despite AI Mania
In its 2023 letter to investors, Fenimore Asset Management said that its dividend-focused fund posted excellent results in the year despite volatility, the market’s focus on AI/growth stocks and banking crisis. The fund returned 19.70% in the year, surpassing its benchmark Russell Midcap Index’s return of 17.23%. This dividend fund invests in companies with strong dividend growth history. The letter said the average annual growth rate of dividends paid by the fund’s holdings is 10.5%. Over the past one year the average dividend growth posted by its holdings 9.5%, beating inflation. The fund said the biggest dividend increases in its portfolio came from Microchip Technology (MCHP), Cintas Corporation (CTAS) and Fastenal Company (FAST).
Methodology
For this article we first used Insider Monkey’s insider trading stock screener to find stocks that recently saw heavy insider buying activity. From these stocks we chose 10 stocks that also pay dividends. Some top names in the list include Northwest Bancshares Inc (NASDAQ:NWBI), DT Midstream Inc (NYSE:DTM) and Ryman Hospitality Properties Inc (NYSE:RHP). Why should you pay attention to insider trading activity? Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences returned 199.2% between March 2017 and March 12, 2024 and outperformed the S&P 500 ETFs’ 144.9% gain by more than 54 percentage points.
10. C&F Financial Corp (NASDAQ:CFFI)
Number of Hedge Fund Investors: 2
On April 30, 2024, George R. Sisson III, a director at C&F Financial Corp (NASDAQ:CFFI), bought 1,000 shares at a price of $39.47 per share. Since then the stock has gained about 7%. The stock has a dividend yield of about 4.2%.
9. Penns Woods Bancorp, Inc. (NASDAQ:PWOD)
Number of Hedge Fund Investors: 3
With a dividend yield of about 6.9%, Penns Woods Bancorp, Inc. (NASDAQ:PWOD) is one of the top dividend-paying stocks that saw insider buying activity recently. On May 2, Penns Woods Bancorp, Inc.’s (NASDAQ:PWOD) Senior Vice President purchases 535 shares at a price of $18.66 per share.
8. Citizens & Northern Corporation (NASDAQ:CZNC)
Number of Hedge Fund Investors: 3
Pennsylvania-based banking company Citizens & Northern Corporation (NASDAQ:CZNC) on May 3 saw insider buying activity when Frank G. Pellegrino, a director at Citizens & Northern Corporation (NASDAQ:CZNC), bought 282 shares at a price of $17.88 per share. The stock’s dividend yield is over 6% as of May 7.
7. BCB Bancorp Inc (NASDAQ:BCBP)
Number of Hedge Fund Investors: 4
With a dividend yield of over 6%, BCB Bancorp Inc (NASDAQ:BCBP) is a notable dividend stock with insider purchases.
Mark Hogan, a director at BCB Bancorp Inc (NASDAQ:BCBP), purchased 1,422 shares of BCB Bancorp Inc (NASDAQ:BCBP) on May 3 at $9.79 per share. Since then the stock is up about 6%. On May 2, BCB Bancorp Inc’s (NASDAQ:BCBP) Chief Lending Officer David Roque Garcia bought 1,700 shares of BCB Bancorp Inc (NASDAQ:BCBP) at $9.59 per share. The total value of this transaction was about $16,303. Since this transaction the stock has inched up 0.43%.
In addition to BCBP, insiders are also buying Northwest Bancshares Inc (NASDAQ:NWBI), DT Midstream Inc (NYSE:DTM) and Ryman Hospitality Properties Inc (NYSE:RHP).
6. Meridian Corp (NASDAQ:MRBK)
Number of Hedge Fund Investors: 8
Regional banking company Meridian Corp (NASDAQ:MRBK) ranks sixth in our list of the dividend stocks with latest insider purchases. On May 2, Christopher J. Annas, Meridian Corp’s (NASDAQ:MRBK) CEO, piled into 3,000 shares of Meridian Corp (NASDAQ:MRBK) at $9.15 per share. The net worth of this transaction was $27,450. Meridian’s EVP and CFO Denise Lindsay also bought 2,500 shares of Meridian Corp (NASDAQ:MRBK) on May 1 at $8.98 per share. Since this transaction the stock has gained about 2.5%.
Click to continue reading and see 5 Dividend Stocks Insiders are Buying in May.
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Disclosure. None. 10 Dividend Stocks Insiders are Buying in May was initially published on Insider Monkey.