Who doesn’t love passive income? A dividend stock company regularly makes payments to its shareholders. These payouts are a portion of its earnings. Dividends are made monthly, quarterly, or annually, and these stocks are typically less volatile than their non-dividend-paying peers. Traders like dividend stocks because this dividend stream can be used to reinvest, which, over time, can help build overall wealth. One downside is that paying dividends will reduce the company’s assets, affecting its market value. But the benefit for shareholders is too great to ignore. Here are two undervalued dividend stocks that upped their payouts in May and are worth a look.

Northrop Grumman (NOC)

Northrop Grumman is a global aerospace, defense, and security leader. The company has thrived in the volatility of today’s geopolitical environment. Northrop Grumman’s business model focuses on developing innovative technological solutions through R&D investments, digital transformation, and affordability. Its Aeronautics System segment achieved an 18% rise in sales in Q1 YoY. Its Defense Systems segment posted 3% sales growth. The company’s Mission Systems and Space Systems posted 4% and 9% sales increases, respectively.

In mid-May, the company raised its payout by 10.2% to a quarterly rate of $2.06 per share. This follows two decades of consistent yearly dividend increases, indicating continued strong earnings growth.

Cogent Communications Holdings (CCOI)

Cogent operates worldwide and delivers high-speed internet, ethernet, private networks, and colocation services to small businesses, content and service providers, and mobile and cable operators. Cogent’s adjusted EBITDA margin was 43.2% in Q1 of this year, a 40.6% gain YoY. Although there was some sales choppiness, cost management strategies helped boost the company’s margins.

There was also its acquisition of Wireline in 2023 and the conversion of old Sprint facilities into data centers to improve service and infrastructure. Cogent recently paid out more than 100% of its free cash flow to shareholders through its regular dividend. While this isn’t a sustainable long-term practice, the dividend should be safe unless the company significantly deteriorates. Its current annual dividend yield is 7.15%, $0.98 per share.

Neither Julie Stoller nor Stocks.News have positions in the companies covered in this article.