High Yield Dividend Stocks For August 2021
Summary
- There are 24 High-Yield Dividend Stocks on the August 2021 watchlist.
- The watchlist gained 1.54% in July and is up over 37% since November 2020.
- The watchlist offers an average dividend yield of 3.51% that is more than double the dividend yield of the S&P 500 index.
Market Recap
After two months of trailing (VYM) the watchlist offers almost triple VYM's return in July 2021. The watchlist outpaced its benchmark by 99 basis points for the month of July, with a total return of 1.54%. The fairly valued and undervalued stocks performed slightly better, returning 1.57% during the month. SPY had an even better month in comparison to high-yield stocks, returning 2.44% to investors. However, since inception, the watchlist and the fairly valued and undervalued stocks are still ahead of both VYM and SPY.
The main purpose of a high dividend yield portfolio is not to outperform the broad market but to generate a passive income stream that is safe, reliable, and one that can grow in the future. Stocks on my watchlist for August 2021, collectively, offer a 3.51% dividend yield that is more than double the dividend yield of the S&P 500. These stocks have also grown their dividends at a historical rate of 9.74% per year during the last five years. Collectively, all 24 stocks appear to be potentially about 3% overvalued right now. To me the slightly overvaluation is still attractive in a mainly overvalued stock market.
The best way to create a strong high yield dividend portfolio is with a buy-and-hold strategy. This strategy forces you to think about the stocks you decide to invest your capital into as the plan is to hold the positions indefinitely. Applying this approach over the long term while focusing on potentially undervalued stocks, allows investors to generate alpha through capital appreciation. While this may not pan out for every position, diversifying your high-yield portfolio across 20 or more unique stocks will increase the odds of picking up shares of certain stocks when they are at bargain prices. The beauty of a long-term outlook is time; you can sit back and wait for the valuation to revert to historical norms, all the while collecting a generous passive income stream.
Watchlist Criteria
Creating the high yield watchlist, I had four areas of interest that I focused on: basic criteria, safety, quality and stability. First off, the basic criterion aims to narrow down the list of stocks to those that pay a dividend, offer a yield above 2.75% and trade on the NYSE and NASDAQ. The next set of criteria focus on safety because that is a crucial part of a high yield investing strategy. The filter excludes companies with payout ratios above 100% and companies with negative 5-year dividend growth rates. Another level of safety can be associated with larger companies; therefore, the watchlist narrows in on stocks with a market cap of at least $10 billion. The next set of criteria set out to narrow down the list to include higher quality businesses. The three filters for quality are: a wide or narrow Morningstar moat, a standard or exemplary Morningstar stewardship, and an S&P quality rating of B+ or higher. A Morningstar moat rating represents the company's sustainable competitive advantage, the main difference between a wide and narrow moat is the duration that Morningstar expects that advantage to last. Companies with a wide moat are expected to maintain their advantage for the next 20 years, whereas companies with a narrow moat are expected to maintain their advantage for the next 10 years. The Morningstar stewardship evaluates the management team of a company with respect to shareholders' capital. The S&P quality rating evaluates a company's earnings and dividend history. A rating of B+ or higher is associated with above average businesses. The last set of criteria focus on the stability of a company's top-line and bottom-line growth. The filter eliminates companies with negative 5-year revenue or earnings per share growth rate. I believe a company that is growing both their top-line and bottom-line has the ability to provide growth to its investors in the future.
August 2021 Watchlist
Here is the watchlist for August 2021. There are a total of 24 unique dividend stocks all with a current dividend yield of 2.75% or more. 5 stocks have dropped off from the prior month's watchlist and they are replaced by 9 new stocks. The stocks that have dropped off are M&T Bank (MTB), PepsiCo (PEP), Cisco (CSCO), Merck (MRK) and Xcel Energy (XEL). The new stocks added this month are Enterprise Products Partners (EPD), Darden Restaurants (DRI), General Mills (GIS), Morgan Stanley (MS) and the following five stocks returning to the watchlist: DTE Energy (DTE), Toronto-Dominion Bank (TD), Royal Bank of Canada (RY), Bank of Montreal (BMO) and Rogers Communications (RCI). All four of the returning Canadian stocks dropped off the watchlist after May 2021. DTE Energy dropped off the watchlist for the month of July. The dividend yield and historical yield shown in the table below are as of 7/31/21.
Symbol | Yield | 5Y Yield | Under/Over |
EPD | 7.98% | 6.89% | -15.82% |
MS | 2.92% | 2.15% | -35.81% |
AMGN | 2.91% | 2.66% | -9.40% |
LMT | 2.80% | 2.65% | -5.66% |
TD | 3.79% | 5.14% | 26.26% |
PFG | 4.06% | 3.73% | -8.85% |
TFC | 3.53% | 3.05% | -15.74% |
MMM | 2.99% | 2.79% | -7.17% |
EVRG | 3.28% | 3.03% | -8.25% |
DRI | 3.02% | 2.26% | -33.63% |
RY | 3.40% | 5.40% | 37.04% |
AVGO | 2.97% | 2.64% | -12.50% |
CMS | 2.82% | 2.76% | -2.17% |
PM | 4.80% | 5.23% | 8.22% |
K | 3.66% | 3.33% | -9.91% |
DTE | 2.81% | 2.94% | 4.42% |
SRE | 3.37% | 2.99% | -12.71% |
WEC | 2.88% | 3.00% | 4.00% |
SO | 4.13% | 4.54% | 9.03% |
GIS | 3.47% | 3.60% | 3.61% |
KMB | 3.36% | 3.19% | -5.33% |
LNT | 2.75% | 2.96% | 7.09% |
BMO | 3.42% | 5.47% | 37.48% |
RCI | 3.15% | 4.37% | 27.92% |
Average | 3.51% | 3.62% | 2.88% |
Ave-Under | 3.46% | 3.16% | -9.63% |
The average dividend yield and historical yield shown in the second to last line of the table are for all the stocks in the watchlist. The last line, "Ave-Under", shows the average data for all stocks that are no more than 5% overvalued as computed using dividend yield theory.
The stocks are presented in the order of their ranking using my proprietary system that incorporates the watchlist criteria as well as current valuation.
Closer Look By Sector
The seven utility stocks on the watchlist offer an average dividend yield of 3.15%. Southern Company offers the highest current dividend yield of 4.13%. The average 5 year dividend growth rate of all seven utility stocks is a solid 8.59% with Sempra Energy having the highest individual growth rate of 14.33%. CMS Energy, Evergy and Sempra Energy appear to be potentially undervalued utility stocks this month based on dividend yield theory. The 7 utility stocks from July's watchlist offered an average return of 4.66% last month.
The six financial stocks on the watchlist offer an average dividend yield of 3.52%. Principal Financial Group offers the highest current dividend yield of 4.06%. The average 5 year dividend growth rate of all three financial stocks is a solid 10.38% with Morgan Stanley having the highest individual growth rate of 20.55%. Morgan Stanley, Principal Financial Group and Truist Financial all appear to be potentially undervalued based on dividend yield theory. The 3 financial stocks from July's watchlist offered a very poor average return of -3.83% last month.
The four consumer staple stocks on the watchlist offer an average dividend yield of 3.82%. Philip Morris offers the highest current dividend yield of 4.80%. The average 5 year dividend growth rate of all four consumer staple stocks is a rather low 3.17% with Kimberly Clark having the highest individual growth rate of 4.03%. Kellogg and Kimberly Clark appear to be potentially undervalued based on dividend yield theory. The 4 consumer staple stocks from July's watchlist offered an average return of 1.71% last month.
The two industrial stocks on the watchlist offer an average dividend yield of 2.90%. 3M offers the better current dividend yield of 2.99%. The average 5 year dividend growth rate of both industrial stocks is 8.63% with Lockheed Martin having the better dividend growth history. Both companies appear to be potentially undervalued based on dividend yield theory. The 2 industrial stocks from July's watchlist offered a weak average return of -1.06% last month.
The one information technology stocks on the watchlist offers a dividend yield of 2.97%. The average 5 year dividend growth rate for Broadcom is a very strong 53.01%. Broadcom appears to be potentially undervalued based on dividend yield theory. The 2 information technology stocks from July's watchlist offered a solid average return of 3.5% last month.
The one healthcare stock on the watchlist offers a dividend yield of 2.91%. The average 5 year dividend growth rate for Amgen is a solid 15.16%. Amgen appears to be potentially undervalued based on dividend yield theory. The two healthcare stocks from July's watchlist did not fare well last month offering a -1.04% average return.
The one energy stock on the watchlist offers a dividend yield of 7.98%. The average 5 year dividend growth rate for Enterprise Products Partners is a low 3.34%. The stock appears to be potentially undervalued based on dividend yield theory.
The one consumer discretionary stock on the watchlist offers a dividend yield of 3.02%. The average 5 year dividend growth rate for Darden Restaurants is a low 4.27%. The stock appears to be potentially undervalued based on dividend yield theory.
The one communication stock on the watchlist offers a dividend yield of 3.15%. The average 5 year dividend growth rate for Rogers Communications is a low 5.67%. The stock appears to be potentially overvalued based on dividend yield theory.
Just because a stock is potentially undervalued based on dividend yield theory does not imply potential upside.
Past Performance
The watchlist from July 2021 had a total return of 1.54% last month, while the fairly valued and undervalued stocks from the watchlist had a total return of 1.57%. Both beat VYM's total return of 0.55%%, but trailed the broad market return, defined by SPY, of 2.44%. Since inception, November 1st, 2020, both the watchlist and the fairly valued and undervalued stocks are still outperforming SPY and VYM. On a year to date basis the watchlist is outperforming both VYM and SPY. The fairly valued and undervalued stocks are ahead of VYM but trail SPY.
Date | Watchlist | FV/UV | VYM | SPY |
Nov 20 | 13.29% | 13.75% | 12.26% | 10.88% |
Dec 20 | 2.78% | 2.95% | 3.41% | 3.71% |
Jan 21 | -1.27% | -1.17% | -0.57% | -1.02% |
Feb 21 | 2.26% | 1.98% | 4.57% | 2.78% |
Mar 21 | 10.68% | 11.09% | 6.94% | 4.54% |
Apr 21 | 3.72% | 3.07% | 2.55% | 5.29% |
May 21 | 2.47% | 1.83% | 3.03% | 0.66% |
Jun 21 | -1.73% | -1.53% | -1.20% | 2.25% |
Jul 21 | 1.54% | 1.57% | 0.55% | 2.44% |
2021 | 18.50% | 17.53% | 16.71% | 18.06% |
Cumulative | 37.98% | 37.65% | 35.48% | 35.77% |
The top 3 stocks by total return in July 2021 were:
The bottom 3 stocks by total return in July 2021 were:
Performance by Sector for July 2021
- Utilities +4.66% (7 stocks)
- Information Technology +3.50% (2 stocks)
- Consumer Staples +1.71% (4 stocks)
- Healthcare -1.04% (2 stocks)
- Industrials -1.06% (2 stocks)
- Financials -3.83% (3 stocks)
Top 5 Stocks by Total Return since joining the watchlist:
- (BMO) +80.21% (7 months)
- (TD) +66.32% (7 months)
- (PFG) +63.27% (9 months)
- (CSCO) +57.67% (9 months)
- (JPM) +51.19% (4 months)
BMO and TD remain the top 2 stocks with the best overall return while on the watchlist even though neither stock has appeared on the watchlist for the last 2 months. Both companies return to the watchlist in August to push their impressive returns even higher. But perhaps Principal Financial Group can make the push to take over the second place spot. Cisco has dropped off the watchlist for August so they will not have a chance to further increase their impressive return.
After July 2021 there are zero companies that have a negative total return while on the watchlist. The weakest return comes from Comerica that was up 0.38% during its 3 month tenure on the watchlist. WEC Energy Group had a strong return during July pushing it out of negative territory, the stock now has a total return of 3.85% over the 7 months it has been part of the watchlist.
Buy and Hold Approach
Since I practice a buy and hold approach with my personal investments, I thought it would be useful to see how that approach would perform using this watchlist. The premise is simple, each month you allocate an equal amount of capital to all stocks from the watchlist and hold that position for the long term. In the image below, you can see the monthly and cumulative returns for equally allocating to all stocks on the watchlist, just the fairly valued and undervalued stocks and finally allocating all capital to VYM.
Eq Alloc | Under | VYM | |
Nov 20 | 13.29% | 13.75% | 12.26% |
Dec 20 | 2.76% | 3.12% | 3.41% |
Jan 21 | -0.59% | -0.22% | -0.57% |
Feb 21 | 4.70% | 5.17% | 4.57% |
Mar 21 | 8.98% | 8.97% | 6.94% |
Apr 21 | 3.63% | 3.08% | 2.55% |
May 21 | 3.03% | 2.27% | 3.03% |
Jun 21 | -2.51% | -2.69% | -1.20% |
Jul 21 | 0.96% | 1.17% | 0.55% |
2021 | 19.20% | 18.69% | 16.71% |
Cumulative | 38.77% | 39.22% | 35.48% |
The entire watchlist buy and hold portfolio tacked on 0.96% in July, trailing the fairly valued and undervalued buy and hold portfolio that picked up 1.17%. However, on a year to date basis the entire watchlist still holds the better return. Both mock portfolios outperformed VYM in July, further extending their lead on a year-to-date basis and since inception. The goal is to have both remain ahead over the long term. You can notice that both buy and hold portfolios have worse returns for July when compared to the watchlist. This is a result of the legacy holdings in these portfolios of stocks that are no longer on the watchlist. Sometimes these legacy holdings can drive strong returns but they can also lead to underperformance as well. July is another perfect example of weaker returns due to several legacy holdings. However you can also notice that both buy and hold mock portfolios are outperforming the watchlist on a year to date and since inception basis. Therefore this reinforces the buy and hold approach theory, time will tell if this trend will continue to pan out.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of ALL STOCKS EXCEPT GIS AND RCI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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.
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