Top ASX dividend shares to buy in May 2024

Who could use a little extra cash right now?

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Tuesday's federal budget included around $5.4 billion worth of initiatives to help Australians cope with the surging cost of living.

While this is welcome news for many, others are concerned the Government's increased spending will create additional inflationary pressure.

If this proves the case, we could find ourselves waiting even longer for any much-anticipated interest rate cuts from the RBA, notwithstanding the latest jobs data indicating unemployment is rising faster than expected.

As such, even with the additional help provided in this week's budget, we may have to get used to paying higher prices on everyday essentials for longer.

For most of us, having access to a passive income stream generated by ASX dividend shares would be very handy right now and help further ease those cost-of-living pressures.

So we asked our Foolish writers which ASX dividend shares they think offer the very best buying for income investors in May.

Here is what the team came up with:

6 best ASX dividend shares for May 2024 (smallest to largest)

  • Harvey Norman Holdings Limited (ASX: HVN), $5.38 billion
  • Sonic Healthcare Ltd (ASX: SHL) $12.79 billion
  • Coles Group Ltd (ASX: COL), $21.83 billion
  • Woolworths Group Ltd (ASX: WOW), $38.66 billion
  • Telstra Group Ltd (ASX: TLS), $42.40 billion
  • Fortescue Ltd (ASX: FMG), $82.95 billion

(Market capitalisations as of market close 17 May 2024).

Why our Foolish writers love these ASX passive income stocks

Harvey Norman Holdings Limited

What it does: Most Australians have probably made a mad dash to a Harvey Norman store at some point for a new appliance, computer, furniture item, or other consumer product – a charging adapter, in my recent case. Boasting more than 300 stores across eight countries, Harvey Norman is a retailing staple.

By Mitchell Lawler: According to billionaire investor Bill Ackman, "The best businesses in the world are capital-light franchises which own the right to collect royalties on a compounding base of assets". 

Admittedly, Harvey Norman isn't exactly a 'capital-light' business, though it is highly profitable thanks to its franchise model. I've said it before – Harvey Norman is akin to McDonald's Corp: Buying the land, leasing it out, and charging a franchise fee. 

Personally, I think Harvey Norman shares are undervalued. Especially after the government decided to throw $300 into the pocket of basically every Australian household via the latest federal budget. A business like Harvey Norman might see a boost from those who didn't need the financial relief.

This ASX dividend payer currently trades on a trailing dividend yield of 5.09%.

Motley Fool contributor Mitchell Lawler does not own shares of Harvey Norman Holdings Limited.

Sonic Healthcare Ltd

What it does: Sonic Healthcare is a global pathology business with operations in Australia, the United States, Germany, Switzerland, the United Kingdom, Belgium, and New Zealand.

By Tristan Harrison: Down 25% since this time last year, the Sonic Healthcare share price is much cheaper now than a year ago. I think this makes it great value right now for ASX income investors.

The ASX 200 healthcare stock now trades on a trailing dividend yield of around 3.6%, excluding franking credits.

Sonic Healthcare has grown its dividend every year since 2013 and almost every year for the past three decades. The company's board of directors has a stated "progressive dividend policy", making it an appealing pick for resilient passive income.

I believe the ASX healthcare company can grow earnings thanks to a number of different tailwinds.

A growing and ageing population can translate into more demand for Sonic's services. It's also investing in businesses that bring new technology to the pathology table, such as AI and microbiome testing.

Sonic Healthcare continues to make acquisitions, which boosts its scale and allows it to achieve increased synergies. It recently announced the acquisition of Dr Risch Group, which generated around AU$156 million of revenue in Switzerland in 2023.

Motley Fool contributor Tristan Harrison owns shares of Sonic Healthcare Ltd.

Coles Group Ltd

What it does: Coles is one of the big two supermarket operators in Australia with more than 840 stores across the country. The company also operates more than 950 liquor stores through brands, including First Choice and Liquorland.

By James Mickleboro: I think Coles would be a great ASX dividend share to buy in May, particularly given its shares are now trading closer to their 52-week low than their 52-week high. 

I believe this recent share price weakness means Coles shares are great value now, especially for a company with a market leadership position, a positive growth outlook, defensive earnings, and an attractive dividend yield.

Speaking of the latter, the team at Morgans is forecasting fully franked dividends of 66 cents per share in FY 2024 and then 69 cents per share in FY 2025. Based on the current Coles share price of $16.20, this equates to yields of 4.1% and 4.25%, respectively.

Morgans also sees plenty of upside for Coles shares with its add rating and $18.95 price target. The broker highlights that "the ongoing scrutiny on the supermarkets has affected short-term sentiment in the sector, which we believe creates a good buying opportunity in COL."

Motley Fool contributor James Mickleboro does not own shares of Coles Group Ltd.

Woolworths Group Ltd

What it does: Woolworths operates Australia's largest supermarket network and also has a presence in New Zealand.

By Bronwyn Allen: When negative market sentiment temporarily drives down the share price of a blue chip stock, the dividend yield may be temporarily enhanced.

Woolworths shares were down 15.6% year-to-date to $31.65 at Friday's close. Top broker Goldman Sachs is tipping dividends of $1.08 in FY24 and $1.14 in FY25. That means dividend yields of 3.4% and 3.6%, respectively.

When you add the 100% franking, those yields move up to around 5% and 5.3%. That's about what you'd get if you left your cash in a savings account. There's no prospect of capital growth in cash investing, but there is with Woolworths shares.

Goldman has a 12-month price target of $39.40 on the ASX 200 consumer staples stock, implying a potential 24.5% upside. The broker assesses the current Woolworths share price as "a value entry level for a high-quality and defensive stock".

Motley Fool contributor Bronwyn Allen does not own shares of Woolworths Group Ltd.

Telstra Group Ltd

What it does: Telstra is a stock that needs little introduction. It is the largest telecommunications provider in Australia and the market leader in mobile telephony and fixed-line broadband services.

By Sebastian Bowen: When looking at the major ASX 200 blue chip shares right now, I think Telstra qualifies as the most oversold of the bunch. Investors have sent this telco down by around 16% since June last year. This pessimism seems to stem from Telstra's decision not to sell off its valuable infrastructure assets. 

However, I think this was the right decision for the telco and, as such, reckon this share price slump is a considerable buying opportunity. Retaining some of its most valuable assets in-house is not a bad thing for Telstra's long-term future. It should bode well for Telstra's dividends and bolster their reliability.

Speaking of dividends, Tesltra's share price falls have resulted in this company's dividend yield rising to over 4.7% at recent pricing. Given that dividend yield typically comes with full franking credits attached too, I think Telstra shares are well and truly oversold this May. 

Motley Fool contributor Sebastian Bowen owns shares of Telstra Group Ltd.

Fortescue Ltd

What it does: Fortescue was established in 2003 and is based in Western Australia. The company counts among the world's biggest iron ore miners and has been leading the competition to become an integrated green technology, energy, and metals company.

By Bernd Struben: Not only has Fortescue delivered outsized passive income over the past year, the company's share price has also soared by 33%.

For its half-year results, the miner reported a 21% year-on-year increase in revenue to US$9.5 billion. And net profit after tax (NPAT) increased by 41% to US$3.3 billion.

As for that income, the ASX 200 miner has paid out $2.08 per share in fully franked dividends over the past 12 months. At the recent Fortescue share price of $26.94, that equates to a fully franked trailing yield of 7.7%.

And I think the outlook remains strong. Despite iron ore shipments slipping in the past quarter, management reaffirmed the company's full-year shipments and cost guidance.

Fortescue also stands to benefit from the $6.7 billion in tax incentives for green hydrogen production contained in the new federal budget. With its investments in green hydrogen, green ammonia, and green iron, Fortescue leads its peers in this field.

Motley Fool contributor Bernd Struben does not own shares of Fortescue Ltd.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Coles Group, Harvey Norman, and Telstra Group. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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