10 Dividend Growth Stocks For September 2021

Sep. 14, 2021 9:00 AM ETABBV, BNS, CVX, ED, EPD, IBM, MMP, OGE, PNW, VZ53 Comments43 Likes
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FerdiS
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Summary

  • This monthly series ranks a selection of dividend growth stocks in Dividend Radar and presents the ten top-ranked stocks for consideration.
  • To rank stocks, I use DVK Quality Snapshots to obtain quality scores, sort them in descending order, and break ties with additional metrics.
  • This month, I screened for high-yielding, discounted stocks with safe dividends. All ten stocks yield at least 4%.

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In my monthly series of 10 Dividend Growth Stocks, I rank a selection of dividend growth [DG] stocks in Dividend Radar and present the ten top-ranked stocks for consideration. Dividend Radar is a weekly automatically generated spreadsheet tracking stocks with dividend increase streaks of five years or more.

This month, I screened for high-yielding, discounted stocks with safe dividends. All ten stocks yield at least 4%, trade below my fair value estimates, and have dividends deemed Very Safe or Safe by Simply Safe Dividends.

High-yielding stocks are suitable for income investors and for dividend growth investors wishing to reinvest dividends. Dividend reinvestment can supercharge long-term returns because of the power of compounding.

Screening and Ranking

The latest Dividend Radar (dated September 10, 2021) contains 749 stocks.

I first screened for stocks yielding at least 4% and found 91 such stocks in Dividend Radar. Only 28 of these candidates have quality scores in the range 15-25 considered Investment Grade. I used DVK Quality Snapshots to determine quality scores.

Subsequently, I screened for stocks with Dividend Safety Scores above 60 (Very Safe and Safe dividends) and stocks trading below my fair value estimates. Only twelve stocks passed all three screens.

I ranked these candidates using DVK Quality Snapshots and present the ten top-ranked stocks for consideration. To rank candidates, I sort them in descending order based on quality scores and use the following tie-breaking metrics, as necessary:

  • Simply Safe Dividends' Dividend Safety Scores
  • S&P Credit Ratings
  • Dividend Yield

I rarely need to use the dividend yield to break ties.

Top 10 Dividend Growth Stocks for September

Here are this month's ten top-ranked DG stocks in rank order:

Top 10 Dividend Growth Stocks for September 2021
Click here to review the August Edition of 10 Dividend Growth Stocks.

I own the six highlighted stocks in my DivGro portfolio. The following company descriptions are my summary of company descriptions sourced from FinViz.

1. Pinnacle West Capital Corporation (PNW)

PNW is a holding company that provides retail and wholesale electric services primarily in the state of Arizona. Its subsidiary, Arizona Public Service Company, is a vertically integrated electric company that generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. PNW was founded in 1920 and is headquartered in Phoenix, Arizona.

2. Verizon Communications Inc. (VZ)

VZ provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. Formerly known as Bell Atlantic Corporation, the company changed its name to Verizon Communications Inc in June 2000. VZ was founded in 1983 and is based in New York, New York.

3. Consolidated Edison, Inc. (ED)

ED delivers electricity, gas, and steam. The company provides electric services to customers in New York City and Westchester County; gas to customers in Manhattan, the Bronx, and parts of Queens and Westchester County; and steam to customers in parts of Manhattan. ED was founded in 1884 and is based in New York, New York.

4. International Business Machines Corporation (IBM)

Founded in 1910 and headquartered in Armonk, New York, IBM is a global information technology (or IT) company that offers consulting and application management services, IT infrastructure services, and infrastructure technologies. IBM’s Watson is a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and other computing systems.

5. The Bank of Nova Scotia (BNS)

BNS provides various banking products and services in Canada, the United States, Mexico, and internationally. It operates through Canadian Banking, International Banking, Global Banking and Markets, and Global Wealth Management segments. BNS was founded in 1832 and is headquartered in Halifax, Canada.

6. Chevron Corporation (CVX)

Founded in 1984 and based in San Ramon, California, CVX is a multinational energy corporation involved in all aspects of the oil and gas industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. CVX is the fifth-largest integrated energy company with operations in about 180 countries.

7. AbbVie Inc. (ABBV)

ABBV is a worldwide, research-based biopharmaceutical company that develops and markets products to treat conditions such as rheumatoid arthritis, psoriasis, and Crohn's disease; hepatitis C; human immunodeficiency virus; endometriosis; thyroid disease; Parkinson's disease; and chronic kidney disease and cystic fibrosis. ABBV was incorporated in 2012 and is based in North Chicago, Illinois.

8. Enterprise Products Partners L.P. (EPD)

Founded in 1968 and based in Houston, Texas, EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals, and refined products. EPD operates through four segments: NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services; and Petrochemical & Refined Products Services.

9. Magellan Midstream Partners, L.P. (MMP)

Founded in 2000 and headquartered in Tulsa, Oklahoma, MMP is a publicly traded partnership engaged in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. MMP owns the longest refined products pipeline in the USA, with access to about half of the nation’s refining capacity.

10. OGE Energy Corp. (OGE)

Founded in 1995, OGE, together with its subsidiaries, provides energy and energy services primarily in the south-central United States. The company operates in two segments, Electric Utility and Natural Gas Midstream Operations. It offers physical delivery and related services for both electricity and natural gas. OGE is headquartered in Oklahoma City, Oklahoma.

Please note that the top ten DG stocks are candidates for further analysis, not recommendations.

Key Metrics and Fair Value Estimates

Below, I provide a table with key metrics of interest to DG investors, including the dividend increase streak (Years), the forward dividend Yield for a recent stock Price, and the 5-year dividend growth rate (5-Yr DGR). The Chowder Number (CDN) and 5-year Yield on Cost (5-Yr YoC) are measures of a stock’s future total return and dividend income prospects, while the 5-year trailing total returns (5-Yr TTR) is a measure of the stock’s performance over the past five years.

I also provide the five quality indicators used in determining each stock's quality score (Qual.), as well as my Fair Value estimate to help identify stocks that trade at favorable valuations. I show the discount (–Disc) or premium (+Prem) of a recent price to my fair value estimate.

Rank Company (Ticker) Sector Supersector
1 Pinnacle West Capital (PNW) Utilities Defensive
2 Verizon Communications (VZ) Communication Services Sensitive
3 Consolidated Edison (ED) Utilities Defensive
4 International Business Machines (IBM) Information Technology Sensitive
5 The Bank of Nova Scotia (BNS) Financials Cyclical
6 Chevron (CVX) Energy Sensitive
7 AbbVie(ABBV) Health Care Defensive
8 Enterprise Products Partners (EPD) Energy Sensitive
9 Magellan Midstream Partners (MMP) Energy Sensitive
10 OGE Energy (OGE) Utilities Defensive

My fair value estimates are derived from fair value estimates and price targets available at several sources, including Morningstar and Finbox. I also estimate fair value using the five-year average dividend yield of each stock using data from Dividend Radar. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

Commentary

Here's a comparative analysis of an equal-weighted portfolio of this month's top ten DG stocks, courtesy of Finbox.com:

Source: Finbox.com

From a price-performance perspective, the portfolio would have significantly underperformed the S&P 500 (as represented by the SPDR S&P 500 Trust ETF (SPY)) over the last five years, returning only 2.47% versus SPY's 105.94%. MMP and EPD have the highest yields, while all but one stock have fair value upsides according to Finbox.com.

Investing in high-yielding stocks does not necessarily deliver high total returns. The 5-year TTRs of ABBV and BNS are 17.9% and 10.7%, respectively. Those are solid returns for high-yielding stocks. The 5-year TTRs of the other stocks are mediocre at best.

Of course, investors looking for higher yields may be more interested in income than in total returns. For example, retirees living off dividend income would need higher-yielding stocks to cover living expenses. Aside from dividend yield, their main concern would be Dividend Safety.

Dividend reinvestment can supercharge long-term returns because of the power of compounding. So dividend growth investors may look for higher yields because they can reinvest those larger dividends.

We can use a dividend returns calculator to see the impact of dividend reinvestment. Assume we invested $10,000 in each of these stocks on 11 September 2016. The following table shows how these investments would have performed through 10 September 2021, with and without dividend reinvestment:

Ticker Starting Investment Ending Investment with Reinvestment Ending Investment without Reinvestment
PNW 10,000 11,818.52 11,875.74
VZ 10,000 12,895.28 12,610.00
ED 10,000 12,071.98 11,996.65
IBM 10,000 10,841.53 10,635.21
BNS 10,000 14,420.30 13,814.59
CVX 10,000 11,721.73 11,721.73
ABBV 10,000 20,877.56 19,707.17
EPD 10,000 11,518.87 11,274.76
MMP 10,000 9558.26 9519.77
OGE 10,000 13,647.16 13,405.37
Totals: 100,000 129,371.19 126,560.99
Total Return: 29.37% 26.56%
Annualized Return: 6.65% 6.07%

In this example, dividends are reinvested in the stocks that paid them, which is not what I typically do. Rather, I collect dividends and reinvest them (along with new capital) in stocks trading at favorable valuations.

PNW illustrates that dividend reinvestment in the same stock does not always have the desired outcome! (And, interestingly, dividend reinvestment with CVX over this time frame would have been a wash).

AbbVie looks the most interesting to me, mainly because the company is the only one with a double-digit percentage 5-year DGR:

Source: Portfolio-Insight.com

ABBV's earnings growth history is impressive, too:

At 43%, the stock's earnings payout ratio is "edging high for biotechs", according to Simply Safe Dividends, though we note that the ratio is trending down:

Source: Simply Safe Dividends

Based on my preferred portfolio target weights, my ABBV position is a full-sized position, so I'm not looking to add shares at this time. However, I think ABBV is worth looking into if you're interested in a high-yielding, safe DG stock with some growth prospects!

Concluding Remarks

In this article, I ranked discounted and safe Dividend Radar stocks yielding at least 4%.

Six stocks are rated Fine (quality scores:19-22) and four stocks are rated Decent (quality scores: 15-18). In my view, ABBV provides the best opportunity now, given its discount of 17% and an attractive dividend yield and dividend growth rate combination (4.71% and 1.1%, respectively).

As always, I encourage readers to do their due diligence before buying any stocks I cover.

Thanks for reading and take care, everybody!

This article was written by

FerdiS profile picture
25.87K Followers
FerdiS invests in dividend growth stocks and writes options to boost dividend income. He manages DivGro, a portfolio of mainly dividend growth stocks created in January 2013. With investment and trading experience spanning nearly 20 years, FerdiS enjoys writing articles about dividend growth investing, options trading, stock selection, portfolio management, and passive income generation. His DivGro blog hosts more than 1,000 posts and a live, public spreadsheet with full details of his DivGro portfolio, allowing readers to follow along in his investment journey. FerdiS is collaborating with the founders of Portfolio Insight, an online platform for portfolio management and investment analysis. Together, we maintain and publish Dividend Radar, a free spreadsheet of dividend growth stocks, on a weekly basis.
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Disclosure: I/we have a beneficial long position in the shares of ABBV, BNS, CVX, IBM, PNW, VZ 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.

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