- Dividend stocks are a popular way to invest in the market, providing compounding returns while just holding the company's shares.
- These are three dividend stocks that soared last month in my portfolio.
- All three remain interesting going forward and should provide additional upside over the long term.
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March was a really healthy month across the board, and most investors were rewarded. Every sector was higher as measured by the sector SPDR ETFs. This also brought the lagging utilities, consumer staples and healthcare sectors positive on a YTD basis. That being said, the NASDAQ composite opened March 1st at 13,406 and closed the month at 13,246. Working out to a small decline - the tech-heavy index certainly was bragging otherwise for most of the last year. So it is only appropriate they take a breather - as a rotation into value plays out.
(Source - Seeking Alpha)
What is interesting, and what I wanted to highlight is my three highest flyers from my dividend growers list. Dividend growth stocks make up a material part of my investible assets. Though closed-end funds make up the largest allocation. It is CEFs that help fund the rest of my buys of dividend growers and speculative positions.
WEC Energy Group (WEC)
WEC has been a longer-term position of mine. Actually, to be honest, most of the dividend stocks I've held for quite a while and don't plan on selling. That being said, WEC is probably one of the lesser-known or held that I hold.
WEC is a multi-utilities company with operations throughout the midwest in natural gas and electric. Headquartered out of Milwaukee, Wisconsin. Like any good utility company, it operated through 2020 fairly unscathed. Though revenue declined slightly for the full year. At the same time, EPS rose and is anticipated to continue rising into 2021. That should help out with the dividend growth to continue.
(Source - Presentation)
The company has sported dividend growth for 17 years now. As with most traditional utility companies, it isn't putting out eye-popping dividend growth. The last 10-year CAGR came to 11.59%. For most utility companies, we aren't looking for blistering growth either.
(Source - Seeking Alpha)
The rebound in the utility sector helped WEC push higher - after lagging performance along with the rest of the utility space. The company returned 16.06% for the month of March.
The Home Depot (HD)
HD has been a solid winner for over the last year now. In fact, it keeps reaching new all-time highs pretty regularly. Yet, I can't seem to pull the trigger to unload and take profits. So far, it's been the right decision to just keep holding on. Of course, like everything else, it is looking rather expensive now. Especially after its impressive run. It hasn't just been impressive for the last month or year - it has been a winner for the last decade+!
Home Depot seems like heads you win, tails you win. Why? Lockdown = let's go to Home Depot so we can paint and remodel while stuck at home. Housing boom = let's go to Home Depot for the supplies to build new houses. Recession = let's go to Home Depot for remodeling or additions rather than building. Okay, now if it's a truly horrific depression, I'm sure we would be saying otherwise…or for a situation like 2008/09. I don't think the Fed allows that anymore though.
That has just been my take for over the last decade+ with this company. They just can't seem to lose - which means investors should be happy. They have been paying a dividend since 1987. Without missing any increases except for several years between 2008/09. A time when real estate and the financial markets were the fulcrum of the crash. As we were mentioning above, needing a severe depression or something that literally hits at the heart of their core business of building. No cut, but they just maintained the same quarterly payout of $0.225 from 11/2006 to 12/2009.
(Source - No one had one (thanks data aggregators,) so I had to make my own using HD's provided history)
Helping to fund the latest 10% dividend increase was an increase of almost 20% in sales for 2020. Though they didn't keep up the dividend growth with their earnings for the last year, they still have put up a 10-year CAGR of 20.43% for their dividend growth. Leaning a bit more conservative isn't a bad idea considering the jump in sales they had related to the lockdowns. EPS came to $11.94 per diluted share, an increase of 16.5%. They aren't given any guidance for 2021.
To reiterate, this company had put up some remarkable performance over the last decade. Over the month of March, they were able to pop 18.80% on a total return basis. Not a bad deal for shareholders.
Altria Group (MO)
Finally, here is a company that needs little introduction. The most surprising thing for MO is that I am always on the fence about selling out of this position. The dividend history might look unappealing at first, but for income investors that hold it - we know that a number of spinoffs resulted in dividend differences. When a company spins off a massive part of its business, it is going to result in a lower dividend.
(Source - Company Website)
The company targets a payout ratio of 80% of adjusted diluted EPS. So it makes it fairly easy to know where the dividend could be moving based on EPS projections. They are guiding for the full-year 2021 of adjusted diluted EPS of $4.49 to $4.62. That works out to a 3 to 6% potential increase from 2020 $4.36 amount.
Thus, a 3 to 6% increase for their dividend could be coming up. The midway point would be $4.555, which could translate into a dividend amount of $3.644 or around $0.91 per quarter. It does seem like it is on the higher end for an increase from the $0.86 they pay now. Currently, the yield works out to 6.75%. Though they have been able to produce a 10-year CAGR of 8.66%.
The biggest power behind MO is its pricing power. Marijuana is certainly also a potential future source of revenue for the company. In fact, that prospect is what keeps me wanting to hang on. It will take full legalization in the U.S., I believe before MO would make a significant move.
Anyway, MO has been power higher, in the last month the stock was up 19.31%! Not bad for a stock that had been doing almost nothing for the last few years on a total return basis.
Dividend growers can lead to compounding future wealth, whether you are investing more or not. It is as simple as just having to hold shares in these companies and you can be creating wealth through higher and higher dividend payments. Of course, this is all backed by earnings that should continue to grow - so that needs to be watched as well. Over the last month, these were three of my largest movers. They might not be appropriate for every investor, so each investor needs to make sure they are a good fit for themselves.
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This article was written by
Nick Ackerman is a former financial advisor using his experience to provide coverage on closed-end funds and exchange-traded funds. Nick has previously held Series 7 and Series 66 licenses and has been investing personally for over 14 years.
He contributes to the investing group CEF/ETF Income Laboratory along with leader Stanford Chemist, and Juan de la Hoz and Dividend Seeker. They help members benefit from income and arbitrage strategies in CEFs and ETFs by providing expert-level research. The service includes: managed portfolios targeting safe 8%+ yields, actionable income and arbitrage recommendations, in-depth analysis of CEFs and ETFs, and a friendly community of over a thousand members looking for the best income ideas. These are geared towards both active and passive investors. The vast majority of their holdings are also monthly-payers, which is great for faster compounding as well as smoothing income streams. Learn More.
Analyst’s Disclosure: I am/we are long WEC, HD, MO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Originally published on April 4th, 2021 on Substack.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.