High Growth Dividend Stocks For October 2021
Summary
- I present 30 High Growth Dividend Stocks for consideration in October 2021.
- The watchlist from September 2021 had a -4.14% return last month beating both VIG and SPY.
- Year to date, the watchlist is up 16.65%, now 0.92% ahead of SPY.
Lari Bat/iStock via Getty Images
Quality Stocks
Quality high growth dividend stocks finally give way in September and end a 7-month streak of positive returns. The watchlist for September lost 4.14% while the fairly valued and undervalued stocks performed a little better losing only 3.67%. VIG, the dividend appreciation ETF from Vanguard, on the other hand, lost 4.99% last month, underperforming both the watchlist and the fairly valued and undervalued stocks. SPY also underperformed both the watchlist and the fairly valued and undervalued stocks last month with a return of minus 4.66%.
The watchlist for October has 10 fairly valued or undervalued stocks that is two more companies than in the prior month. The entire October watchlist has an average dividend yield of 1.03% and the 10 fairly valued and undervalued stocks offer a more attractive dividend yield of 1.54%.
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 October 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 99 stocks for the month of October 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 October 2021
Symbol | 5Y YIELD | YIELD | O/U |
CTAS | 1.02% | 0.98% | 3.92% |
SCHW | 1.04% | 0.96% | 7.69% |
DPZ | 0.90% | 0.78% | 13.33% |
LRCX | 1.34% | 1.06% | 20.90% |
AMAT | 1.37% | 0.75% | 45.26% |
UNH | 1.39% | 1.45% | -4.32% |
LOW | 1.63% | 1.55% | 4.91% |
HD | 2.11% | 1.96% | 7.11% |
TMO | 0.29% | 0.18% | 37.93% |
MS | 2.15% | 2.81% | -30.70% |
MKTX | 0.62% | 0.62% | 0.00% |
MSCI | 1.05% | 0.68% | 35.24% |
HUM | 0.63% | 0.71% | -12.70% |
TXN | 2.37% | 2.38% | -0.42% |
MA | 0.55% | 0.50% | 9.09% |
TROW | 2.59% | 2.14% | 17.37% |
TSCO | 1.31% | 1.00% | 23.66% |
EXPD | 1.30% | 0.96% | 26.15% |
INTU | 0.69% | 0.50% | 27.54% |
WST | 0.47% | 0.16% | 65.96% |
NVDA | 0.29% | 0.08% | 72.41% |
ATVI | 0.60% | 0.61% | -1.67% |
LMT | 2.65% | 3.20% | -20.75% |
ICE | 1.15% | 1.13% | 1.74% |
V | 0.61% | 0.56% | 8.20% |
SHW | 0.89% | 0.78% | 12.36% |
ROP | 0.56% | 0.49% | 12.50% |
MCO | 1.09% | 0.69% | 36.70% |
MPWR | 0.80% | 0.50% | 37.50% |
MSFT | 1.40% | 0.87% | 37.86% |
Average | 1.16% | 1.03% | 10.96% |
Ave-Under | 1.42% | 1.54% | -8.66% |
Above are the 30 stocks I am considering for further evaluation during the month. They are sorted in descending order by their rank and 5-year dividend growth rate. The new stock this month is:
- Lockheed Martin (LMT) - returns after a 1-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 1.03%, the potentially fairly valued and undervalued stocks offer a better average dividend yield of 1.54%.
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
September was a very poor month for the stock market. The watchlist had its second worst month this year, losing 4.14% last month. The fairly valued and undervalued stocks performed slightly better losing only 3.67%. Both the watchlist and the fairly valued and undervalued stocks beat VIG that lost 4.99% in September. SPY also underperformed both the watchlist and the fairly valued and undervalued stocks losing 4.66%. The fairly valued and undervalued stocks picked up more alpha during September and continue to dominate on a year-to-date basis and since inception (9/1/20). The watchlist gained a little ground on SPY last month and moves ahead of the broad market ETF year-to-date but not since inception.
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 trailing SPY but ahead of VIG. The watchlist has thirteen months of returns now.
Month | Watchlist | Fairly Valued and Undervalued | 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% |
Aug 21 | 1.52% | 2.90% | 1.67% | 2.98% |
Sep 21 | -4.14% | -3.67% | -4.99% | -4.66% |
2020 Partial | 6.27% | 6.80% | 9.09% | 7.94% |
2021 | 16.65% | 19.76% | 10.17% | 15.74% |
Since Inception | 23.97% | 27.90% | 20.19% | 24.92% |
Annualized | 21.94% | 25.50% | 18.50% | 22.80% |
The top 3 stocks by total return in September 2021 were:
The bottom 3 stocks by total return in September 2021 were:
Top 5 Stocks by Total Return since joining the watchlist:
- MSCI (MSCI) +64.14% (13 months)
- Intuit (INTU) +47.12% (12 months)
- Tractor Supply (TSCO) +44.15 (8 months) NEW
- T. Rowe Price (TROW) +42.67% (12 months)
- Charles Schwab (SCHW) +42.51% (8 months)
MSCI had a poor return in September but remains the number one stock in terms of total return on the watchlist. Expeditors International of Washington fell 4.42% last month and dropped out of the top 5 list. They are replaced by Tractor Supply that was the best performing stock on the watchlist last month. Tractor Supply jumps out to take the 3rd place spot ahead of Charles Schwab and T. Rowe Price.
Drivers of Alpha
The watchlist picked up 0.85% of alpha in September over VIG. Of the 30 stocks on the September watchlist, 5 finished the month with a positive total return, 12 stocks had a negative return but one that was better than the return of VIG and the remaining 13 stocks performed worse than the VIG. The watchlist was able to outperform its benchmark because more (17) stocks performed better than VIG last month.
The main drivers of alpha were:
- TSCO +4.30% (+0.14% impact to entire watchlist)
- TMO +3.00% (+0.10% impact to entire watchlist)
- HD +1.15% (+0.04% impact to entire watchlist)
- TXN +0.68% (+0.02% impact to entire watchlist)
- MA +0.42% (+0.01% impact to entire watchlist)
The impact on the watchlist portfolio was as follows: 32 basis points from the 5 positive return stocks, minus 121 basis points from the 12 stocks that had a negative return but one that was better than VIG, and minus 325 basis points from the remaining 13 stocks that underperformed VIG.
Average Return | Impact on Portfolio | Count | |
Positive | 1.91% | 0.32% | 5 |
Better than VIG | -3.01% | -1.21% | 12 |
Worse than VIG | -7.50% | -3.25% | 13 |
Average | -4.14% | -4.14% |
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.
Month | Watchlist | Fairly Valued and Undervalued | 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 | 3.10% | 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% |
Aug 21 | 2.49% | 1.65% | 1.67% |
Sep 21 | -4.61% | -4.03% | -4.99% |
2020 Partial | 6.18% | 7.45% | 9.09% |
2021 | 18.47% | 16.52% | 10.17% |
Cumulative | 25.79% | 25.20% | 20.19% |
Annualized | 23.59% | 23.06% | 18.50% |
The fairly valued and undervalued buy and hold portfolio had the best return last month losing 4.03%. The watchlist beat VIG but returned a pretty poor minus 4.61%. Both the watchlist and the fairly valued and undervalued buy and hold portfolios remain ahead of VIG on a year-to-date basis and since inception. 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. Thus far both portfolios are generating about 5% of alpha over VIG.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of ALL STOCKS MENTIONED 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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