Dividend Stock Watch List: Lanny's March 2021 Edition
Summary
- Welcome back to another dividend stock watch list and you can have a sneak peek of the dividend stocks that are on my radar.
- As a dividend stock investor, for the first time, I feel a little uncertain of what the future may hold.
- Finding dividend stocks isn't easy, but there are also other factors, such as composition of my portfolio by industry (such as - am I overweight/underweight in an industry), as well as exposure to one stock and the concentration there.
Two months down, and we are still working through COVID-19. Johnson & Johnson (JNJ) just released/announced their one shot vaccine, about 10-15% of the US population is vaccinated and the third round of economic stimulus is still in process of being approved, albeit one step closer.
As always, it was time to find undervalued dividend growth stocks. Heading into March, I continued to do just that and three undervalued dividend stocks are on my dividend stock watch list below!
Dividend stock watch list
Welcome back to another dividend stock watch list and you can have a sneak peek of the dividend stocks that are on my radar. The stock market recovered from the WallStreetBets fiasco, likely due to companies showing better than expected results, hopes for vaccines and ultimately - getting out of this damn Pandemic of COVID-19. It's 2021, come on!!!!!
Below is a chart of the S&P 500 and you can see the market climb almost back up to 3,900 and then come back down to earth at 3,713.
Interest rates are significantly low on your savings, including high yield savings, accounts, as well as money market accounts & funds. In fact, Ally Savings reduced my interest rate to 0.60% back in September 0.50% in mid-December. Luckily, I can still say that I am earning 0.50% on my savings account as of the end of 2020. Will that stay, though? Not certain, but I am estimating another decline in Ally's high yield online savings rate by March 2021. Here is my last lovely message from Ally (ALLY), below:
What else are investors waiting on? Well, for the markets to correct and for President Biden to announce more economic stimulus.
In addition, the Federal reserve continues to make headlines, as they've been flushing the stock market with cash. The Fed has been steadily pumping, essentially, using Quantitative Easing (QE) throughout the pandemic period. Here is the latest from the Fed:
Therefore, it's hard imagining an economy without the interjection from the Fed and how much the economy here is relying on them. In addition, the unemployment benefits of $300 extra per week are ongoing. In addition, due to the bill passing, the rent, mortgage and loan forbearances are still kicked out for due dates. Very interesting world we are in.
I know the Federal Reserve, the country and the world are waiting (anxiously, nervously, patiently) for the next economic decision that our President declared has passed the House ($1.9 trillion, $1,400 checks, etc.). Will we receive a third round stimulus? Will pandemic unemployment benefit assistance occur again? Time will tell and all appears VERY uncertain here in the short term and moderate term.
As a dividend stock investor, for the first time, I feel a little uncertain of what the future may hold. We continue to save and invest in very conservative dividend stock investments, in smaller purchases. I have written two articles related to the topic of - the Coronavirus Dividend Stock Watch List and Industries that truly thrive during a pandemic.
In addition, given the uncertainty, I continue to make smaller, weekly investments into Vanguard Exchange Traded Funds (ETFs). The specific ETF my wife and I have been loading up on is Vanguard High Dividend Yield (VYM). We are investing $500 per week, to stay invested in the market, during the uncertain times.
Therefore, on the road to financial freedom, acquiring assets that produce cash flow or income is the goal! Like I always say, there is always a diamond in the rough. How do I find an undervalued dividend stock? Time to introduce our beloved Dividend Diplomat Stock Screener!
Dividend Diplomat Stock Screener
If you don't know already, we keep the stock screener metrics to THREE SIMPLE items. They are:
- Price to Earnings Ratio - We look for a price to earnings ratio < the overall Stock Market.
- Payout Ratio - We aim for a payout ratio of less than 60%.
- Dividend Growth - We like to see history of dividend growth in a company.
See the video below, for further details and explanation.
Time to find the answer to… how did the dividend stocks on my watch list grade on the stock screener?
Dividend stock watch list
Here is the list of dividend stocks that are on my radar going into the month of March 2021. I typically like to keep it at 3 dividend stocks, keeping the focus locked in. Finding dividend stocks isn't easy, but there are also other factors, such as composition of my portfolio by industry (such as - am I overweight/underweight in an industry), as well as exposure to one stock and the concentration there.
There, the dividend stocks on my list cater to those other facets when building a dividend stock portfolio. The two industries below, that I am actually underweight in, are Telecommunications and Consumer Goods!
Verizon Communications, Inc. (VZ)
Verizon stays on my dividend stock watch list for ANOTHER month! The 5G auction is now OVER $80 billion and Verizon, of course, is leading the way.
The latest, HUGE headline news for Verizon comes from the Oracle of Omaha himself, Warren Buffett. Why? Well, take a look below and you'll see that Warren invested $8.6 billion into Verizon stock. That's one hefty dividend and DRIP, might I add!
The price has remained relatively flat, though the big spike was from Warren's announcement. It spiked up to over $57, but is now back into the $55s. See the chart below:
Now, it is time to see what Verizon stacks up through the Dividend Diplomat Stock Screener:
- Price to Earnings Ratio: At a share price of $55.30, close of 2/28/21, the analysts are projecting $5.08 in earnings per share for 2021. Therefore, the P/E ratio, which helps determine under/over valuation, calculates to 10.88. This compares favorably to the S&P 500, which is trading at 35x+ earnings. 35x earnings is insanely high rate now, hence why investing into dividend stocks is tougher and tougher. Here is evidence for the projected earnings:
- Payout Ratio: Verizon's total dividend is $2.51 in dividends per year. At a projected earnings of $5.08, the dividend payout ratio is 49%. This is right in the range I like to see. In fact, Verizon's payout ratio is in the perfect sweet spot of 40-60%! The dividend safety is in tact. Being a Telecommunications & Technology based company, you want to make sure you have earnings to reinvest and grow the business, which a payout ratio right at the 49-50% mark does just that.
- Dividend Growth: Verizon has a dividend growth streak of 15+ years going. They want that Dividend Aristocrat status, I can feel it! However, the average dividend growth rate is low, at 2% on their 5-year average.
I currently own 32 shares and wouldn't mind to have a nice, round, 50 shares of Verizon. Over halfway, let's get it!
Unilever (UL)
Unilever doesn't need much of an introduction. They are an international consumer brand company, with brands that go DEEP. You know them well, such as Dove, Axe, Lipton, Breyers, TREsemme, Klondike, Suave, the list purely goes on.
What's been exciting about Unilever is their stock price for dividend growth investors. Look at Unilever's performance through 2 months / year-to date:
Unilever has had their stock price drop $8.47 from $60.53 on January 4th 2021. In fact, that represents a 14% drop year-to-date. Sounds like a great time for an undervalued dividend stock opportunity. Let's check UL through our DD screener:
- Price to Earnings Ratio: Unilever is trading at $52.06. Therefore, with an earning expectation of $3.06, that equates to a price to earnings (P/E) ratio of 17. This is not insanely low, but less than half of what the S&P p/e ratio is. Have to love that!
- Payout Ratio: If earnings are projected to be $3.06, the dividend is estimated to be $2.05 (I am conservative). The payout ratio is approximately 67% as well. As you'll see below, this may be a theme, but is slightly higher than the 60% payout ratio ceiling we like to have.
- Dividend Growth: Unilever usually increases their dividend every year, which is sometimes hard to determine due to currency exchange/translation rates.
My wife has a ton of Unilever. We'll have to see how much more we could/should add.
PepsiCo (PEP)
Wow! Curveball here for the dividend investing community, eh?! PepsiCo (PEP) is on my watch list here in 2021 for March baby! This soon to be Dividend King is only one year away from FIFTY straight years of dividend increases. Now, just why in the world are they on my dividend stock watch list?
First, they have incredible brands. Pepsi is iconic. They are a dividend aristocrat and always go head-to-head with Coca-Cola (KO). However, Pepsi always slams Coke, especially with dividend growth, as Coke announced a meager 2.4% increase earlier in February, Pepsi announced a solid 5%+ dividend increase.
Second, Pepsi has a deeper brand base, with snacks/chips and the like. Their brands are deep, with Pepsi, Gatorade, Aquafina, Bubly sparkling, Mountain Dew, Tropicana, Lay's, Doritos, Quaker Oats, Sabra Hummus, etc. Here is a great snapshot:
Then, on top of that, the stock price ACTUALLY hasn't moved like the rest of the market for the last 1 year. Yes, surprisingly, Pepsi's stock price virtually remains unchanged since February 2020 last year:
Therefore, I wanted to run Pepsi back through the Dividend Diplomat Stock Screener to see what this dividend growth stock looks like today, February 28th, 2021:
- Price to Earnings Ratio: At a share price of $129.19, close of 2/28/21, the analysts are projecting $6.05 in earnings per share for 2021 and $6.54 in 2022. Therefore, the P/E ratio, which helps determine under/over valuation, calculates to 21.35, slightly higher than I like but way below the S&P 500 (I am using 2021 projections). This compares favorably to the S&P 500, which is trading at 35x+ earnings. 35x earnings is insanely high rate now, hence why investing into dividend stocks is tougher and tougher. Here is evidence for the projected earnings:
- Payout Ratio: Pepsi's total dividend is $4.09 in dividends per year. At a projected earnings of $6.05, the dividend payout ratio is 67%. Definitely creeping up and now over the 60% threshold I usually like. Do we start to see the dividend growth slow? Say it ain't so Pepsi!
- Dividend Growth: Pepsi has 49 years going strong and they WILL be a dividend king next year. On top of that, the 5-year dividend growth rate stands at 7.84%. Not a bad combo with a 3.16% dividend yield.
Dividend Stock Watch List Conclusion
Dividend investing is real and is happening! Dividend growth is also back. Verizon, at these prices, is very enticing. Would love Pepsi slightly lower and Unilever is a solid pick too. Three dividend growth stocks, all that increase their dividend year after year. The music just rings nicely!
Of course, prior to making any purchase, I definitely will make sure to run them through the Dividend Diplomat Stock Screener once more.
Would obviously like to get to 50 shares of Verizon, to really round that position off that I've been talking about. Then would come Pepsi, to bolster the forward dividend I receive from them. Last, but not least, I could see more Unilever.
As you have noticed, I have trickled many articles on this page. The goal is to educate new dividend investors out there, or to sharpen the terminology for current dividend investors. As always, stick to your investment strategy and dividend stocks will be there. What do you think of these stocks above? Thank you, good luck and happy investing everyone!
-Lanny
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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