The 3 Best Dividend Stocks to Buy in May

There's nothing quite like seeing cash automatically deposited into your accounts. Some companies hold such strong positions in their industries that they can share a portion of their profits with shareholders through regular dividend payments.

Right now, income investors can find some compelling opportunities in the consumer discretionary and consumer staples spaces. Home Depot (NYSE: HD), Pepsico (NASDAQ: PEP), and Starbucks (NASDAQ: SBUX) are all sporting above-average yields now, and each looks like an excellent buy for May.

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Home Depot

Home Depot has proven to be a resilient business in a suboptimal operating environment. Despite higher interest rates than people have become accustomed to and a still-weak housing market, its comparable sales increased by 0.3% in 2025. It also paid its 156th consecutive quarterly dividend in March.

On an annual basis, the dividend totals $9.32 per share, bringing its forward yield to 2.9% -- close to three times the average yield of the S&P 500. Home Depot supports its dividend with more than enough profits, paying out 64% of trailing earnings and 72% of free cash flow over the past year.

The fourth quarter of 2025 was Home Depot's fifth consecutive quarter of same-store sales growth. As the housing market recovers, management is investing to expand its professional customer business, which it estimates at a $700 billion market opportunity.

The company's recent acquisitions of SRS Distribution, GMS, and Mingledorff's expanded its addressable market by $100 billion. It's also expanding its sales force, extending trade credit, and improving its order management systems to boost its pro customer segment.

Management believes these investments will drive future earnings growth. That means more dividend growth on an already attractive yield, and potential share price gains.

PepsiCo

PepsiCo has been another resilient brand amid higher inflation and macroeconomic headwinds. It just posted a solid first-quarter earnings report and recently increased its dividend for the 54th consecutive year.

The annualized dividend is currently $5.69, bringing its forward yield to 3.7%. PepsiCo paid out 89% of earnings and 87% of free cash flow over the past year. Typically, income-focused investors want to see lower payout ratios because they indicate that a company has more flexibility for sustainable dividend growth, but these ratios should decline as PepsiCo's earnings grow.

Organic revenue grew 2.6% year over year in Q1, with core earnings per share up 5% on a constant-currency basis. The faster earnings growth reflects recent efforts to better control costs within the business, and PepsiCo may have more room to improve on that front. Ongoing productivity initiatives, headcount reductions, plant closures, and the use of artificial intelligence (AI) to optimize the supply chain should drive earnings growth and help it keep the dividend-hiking streak going.

PepsiCo has a roster of top brands, including Doritos, Fritos, Cheetos, Gatorade, and Mountain Dew, that generate $95 billion in trailing-12-month revenue. It's a consumer goods powerhouse that can generate earnings and pay dividends for many years, as it has for over half a century.

Starbucks

Starbucks is undergoing a turnaround with former Chipotle Mexican Grill CEO Brian Niccol spearheading the effort. He did a masterful job with that fast-casual restaurant chain previously, and so far, the early results for Starbucks look encouraging.

Starbucks recently paid its 64th consecutive quarterly dividend. Its quarterly distribution of $0.62 brings its forward yield to 2.4%. The only problem is the payout ratio. Starbucks paid out 187% of earnings and 102% of free cash flow over the past year, but it's not as alarming as it looks. It should see higher earnings over the next few years to sustain and increase the dividend.

It's already showing progress, with adjusted earnings per share surging 22% year over year in Q1. Global comparable store sales also increased 6%, putting the company on the road to recovery. This reflects Niccol's strategy to invest deeper in the stores, including adjustments to staffing, scheduling, and technology to improve the customer experience.

The company is also seeing improvement overseas, with all top-10 markets posting comp sales growth in the quarter. Trends are positive enough that management raised its full-year outlook and now expects adjusted earnings to be between $2.25 to $2.45.

A reduction in the dividend is always possible if business worsens, but the return to top- and bottom-line growth last quarter shows that the turnaround strategy is starting to bear fruit. The consensus Wall Street estimate projects earnings to improve to $3.01 in fiscal 2027 and $3.68 in fiscal 2028. Assuming Starbucks meets those expectations, this could be an undervalued dividend stock.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Home Depot, and Starbucks. The Motley Fool recommends the following options: short June 2026 $36 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.