High Growth Dividend Stocks For August 2021
Summary
- I present 30 High Growth Dividend Stocks for consideration in August 2021.
- There are 4 new stocks on this month's watchlist, 3 with dividend yields above 2%.
- The watchlist from July 2021 had a 2.02% return last month.
- Year to date, the watchlist is up 19.87% and 1.99% ahead of SPY.
Quality Stocks
Quality high growth dividend stocks continue their positive returns through July. The watchlist for July offered a modest return of 2.02% and the fairly valued and undervalued stocks had a poor month with a total return of 0.64%. VIG, the dividend appreciation ETF from Vanguard, on the other hand, returned 3.18% last month, beating both the watchlist and the fairly valued and undervalued stocks. SPY also outperformed the watchlist last month with a return of 2.44%.
The watchlist for August has 15 fairly valued or undervalued stocks that offer a more attractive average dividend yield of 1.88%. The entire August watchlist has an average dividend yield of 1.37%.
I would recommend two approaches to dividend investing. The first is to dollar cost average into at least 10-20 or more quality dividend-paying stocks across multiple sectors and industries. By dollar cost averaging, you eliminate the risk of trying to value a stock and over a long enough period, theoretically, you will buy shares at market highs, lows, and in-between resulting in an average cost basis somewhere in the middle. The second method carries a little more risk. Invest in undervalued stocks also dollar cost averaging into at least 10-20 unique quality dividend stocks across multiple sectors and industries. The additional risk with this approach comes from the chance that your valuation method proves to be incorrect. However, by investing in multiple unique stocks the odds that you accurately identify at least a few undervalued stocks increases. The resulting upside from a few correct picks may more than offset the underperformance from the bad ones.
Watchlist Criteria
The criteria used to determine which stocks are included in my high growth dividend stock watchlist remains unchanged for August 2021. It is made up of the 8 factors listed below, that have historically outperformed the broad universe of dividend-paying stocks when analyzed collectively.
- Market Cap of at least $10 billion
- Payout Ratio no greater than 70%
- 5-year Dividend Growth rate of at least 5%
- 5-year Revenue Growth rate of at least 2%
- 5-year EPS Growth rate of at least 2%
- S&P Earnings and Dividend Rating of B+ or better
- Wide or Narrow Moat (Morningstar)
- Exemplary or Standard Management Team (Morningstar)
The rules identified 97 stocks for the month of August that were further ranked based on their individual metrics with the exclusion of the market cap. The top 30 stocks were selected for consideration and will potentially be added to my portfolio. The long-term hypothesis for this watchlist is that it will outperform a broad quality dividend fund such as Vanguard's dividend appreciation ETF, VIG.
Watchlist For August 2021
Symbol | 5Y YIELD | YIELD | O/U |
SCHW | 1.04% | 1.06% | -1.92% |
CTAS | 1.02% | 0.96% | 5.88% |
LOW | 1.63% | 1.66% | -1.84% |
UNH | 1.39% | 1.41% | -1.44% |
MS | 2.15% | 2.92% | -35.81% |
HD | 2.11% | 2.01% | 4.74% |
DPZ | 0.90% | 0.72% | 20.00% |
HUM | 0.63% | 0.66% | -4.76% |
MKTX | 0.62% | 0.56% | 9.68% |
SSNC | 0.69% | 0.82% | -18.84% |
TSCO | 1.31% | 1.15% | 12.21% |
LRCX | 1.34% | 0.82% | 38.81% |
TXN | 2.37% | 2.14% | 9.70% |
NOC | 1.61% | 1.73% | -7.45% |
GS | 1.56% | 2.13% | -36.54% |
LMT | 2.65% | 2.80% | -5.66% |
ICE | 1.15% | 1.10% | 4.35% |
TMO | 0.29% | 0.19% | 34.48% |
VIAC | 1.63% | 2.35% | -44.17% |
MA | 0.55% | 0.46% | 16.36% |
ATVI | 0.60% | 0.56% | 6.67% |
ROP | 0.56% | 0.46% | 17.86% |
TROW | 2.59% | 2.12% | 18.15% |
JPM | 2.36% | 2.37% | -0.42% |
AMAT | 1.37% | 0.69% | 49.64% |
MSCI | 1.05% | 0.70% | 33.33% |
NTRS | 2.14% | 2.48% | -15.89% |
SHW | 0.89% | 0.76% | 14.61% |
V | 0.61% | 0.52% | 14.75% |
BK | 2.12% | 2.65% | -25.00% |
Average | 1.36% | 1.37% | -0.07% |
Ave-Under | 1.66% | 1.88% | -13.23% |
Above are the 30 stocks I am considering for further evaluation during the month of August. They are sorted in descending order by their rank and 5-year dividend growth rate. The new stocks this month are:
- Morgan Stanley (MS) - returns after a 1-month break
- Lam Research (LRCX) - returns after a 1-month break
- Goldman Sachs (GS) - debut on the watchlist
- Bank of New York Mellon (BK) - returns after a 6-month break
The "O/U" column represents potential undervalue; this is a comparison of the current dividend yield to the historical dividend yield. Collectively the 30 stocks offer a dividend yield of 1.37%, the potentially fairly valued and undervalued stocks offer a much better average dividend yield of 1.88%.
I am a buy and hold investor and use this watchlist to identify stocks to include in my portfolio or to add capital to existing positions. I own all of these stocks and will be adding capital to some of the stocks mentioned above during August.
Valuation is computed using the dividend yield theory that compares a stock's current dividend yield to its historical dividend yield. If the current dividend yield is greater than the historical dividend yield, it implies potential undervaluation and vice versa. I like using this valuation method as it is simple, easy, and quick to compute, but like any other valuation method, it is just an approximation of valuation. One could argue that there are better methods to estimate fair value such as a discounted cash flow model. And while that method is probably more accurate, it has its own limitations in addition to the time required to compute it.
Past Performance
The watchlist had a modest total return during July of 2.02%. The fairly valued and undervalued stocks performed much worse, 0.64%. VIG finished the month with a total return of 3.18%, significantly outperforming the watchlist for the month. And SPY outperformed the watchlist but failed to beat VIG with a gain of 2.44%. The fairly valued and undervalued stocks, even with this poor return, continue to dominate on a year-to-date basis and since inception (9/1/20).
Both the watchlist and the fairly valued and undervalued stocks are beating VIG and SPY in 2021. Since inception only the fairly valued and undervalued stocks are beating both VIG and SPY, the watchlist is 3 bps behind SPY after posting a weaker return last month.
Eq-Alloc | Under | VIG | SPY | |
Sep 20 | -3.09% | -2.82% | -1.05% | -3.74% |
Oct 20 | -3.84% | -3.42% | -2.27% | -2.49% |
Nov 20 | 10.74% | 11.17% | 10.04% | 10.88% |
Dec 20 | 2.99% | 2.35% | 2.52% | 3.71% |
Jan 21 | -4.72% | -6.45% | -2.92% | -1.02% |
Feb 21 | 4.16% | 6.61% | 1.58% | 2.78% |
Mar 21 | 5.65% | 7.39% | 6.03% | 4.38% |
Apr 21 | 6.71% | 8.36% | 4.03% | 5.29% |
May 21 | 1.51% | -0.20% | 1.76% | 0.66% |
Jun 21 | 3.46% | 3.66% | -0.14% | 2.25% |
Jul 21 | 2.02% | 0.64% | 3.18% | 2.44% |
Since Inception | 27.40% | 29.03% | 24.42% | 27.43% |
2020 Partial | 6.27% | 6.80% | 9.09% | 7.94% |
2021 | 19.87% | 20.82% | 14.05% | 17.88% |
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
- Materials 6.82% (1 stock)
- Info Technology +4.84% (9 stocks)
- Consumer Discretionary 3.14% (4 stocks)
- Healthcare +2.06% (3 stocks)
- Industrials +1.48% (4 stocks)
- Financials +1.07% (7 stocks)
- Communication Services -10.92% (2 stocks)
Top 5 Stocks by Total Return since joining the watchlist:
- MSCI (MSCI) +60.53% (11 months)
- Intuit (INTU) +54.38% (11 months)
- T. Rowe Price (TROW) +47.34% (10 months)
- Applied Materials (AMAT) +45.26% (6 months)
- Expeditors International of Washington (EXPD) +42.08% (5 months) NEW
MSCI had the 2nd best return on the watchlist stocks in July and that was enough to push them into first place. Intuit also had a very strong return of 8.25% last month and moves up to 2nd place. Charles Schwab had a very poor month and drops off from the top 5 stocks by total return. They are replaced by Expeditors International of Washington.
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 table below, you can see the monthly and cumulative return for equally allocating to all stocks on the watchlist, just the fairly valued and undervalued stocks and finally allocating all capital to VIG.
Eq-Alloc | Under | VIG | |
Sep 20 | -3.09% | -2.82% | -1.05% |
Oct 20 | -3.84% | -3.26% | -2.27% |
Nov 20 | 10.68% | 11.39% | 10.04% |
Dec 20 | 2.95% | 2.61% | 2.52% |
Jan 21 | -4.94% | -5.84% | -2.92% |
Feb 21 | 3.63% | 5.52% | 1.58% |
Mar 21 | 6.52% | 8.18% | 6.03% |
Apr 21 | 7.12% | 6.15% | 4.03% |
May 21 | 1.37% | 1.25% | 1.76% |
Jun 21 | 3.34% | 1.25% | -0.14% |
Jul 21 | 3.44% | 2.12% | 3.18% |
Cumulative | 29.33% | 28.34% | 24.42% |
2021 | 21.80% | 19.44% | 14.05% |
The watchlist performed the best during July in the mock buy-and-hold portfolio, driven by strong returns from many of the legacy holdings. The fairly valued and undervalued mock buy-and-hold portfolio failed to beat the watchlist and VIG for the month. The watchlist buy-and-hold portfolio remains in the lead on a year-to-date basis and since inception. The fairly valued and undervalued mock portfolio continues to remain ahead of VIG with a rather safe cushion. My hypothesis still stands, I believe over the long-term both the watchlist and the fairly valued and undervalued portfolios will generate alpha over VIG.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of ALL STOCKS 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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