Summary
I present my top 15 dividend growth stocks to consider during the month of November.
Last month’s list returned 8.52% in October, outpacing SPY by 1.5%.
Year to date, the watchlist is up 26.59%, now 2.73% ahead of SPY.
ipopba/iStock via Getty Images Quality Stocks
The stock market recouped September’s losses and then some in October while the watchlist more than doubled its losses from the prior month. The total return for October watchlist clocked in at 8.52%, the fairly valued and undervalued stocks performed slightly better with an 8.59% return. Both outpaced VIG , the dividend appreciation ETF from Vanguard, that returned 6.93%. SPY also had an excellent return of 7.02% but came up short of the watchlist.
The watchlist for November has been trimmed from the original 30 dividend stock ideas to just the top 15. The top 15 dividend growth stocks for November offer an average dividend yield of 1.08%. Collectively they have increased their dividend payments at a rate of 18.19% during the last 5 years. Based on dividend yield theory these 15 stocks are about 18% overvalued right now, but I think they are still poised to offer strong long term returns. This month we have 3 potentially undervalued stocks and 2 fairly valued companies.
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 November 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 98 stocks for the month of November that were all ranked based on the above mentioned metrics with the exclusion of the market cap. The top 30 stocks were selected for further analysis. I computed a forecasted rate of return for the next 5 year period for each of the top 30 stocks. This return is based on forecasted earnings growth, a return to fair value and the dividend yield. The top 15 stocks with the highest forecast were chosen for the November watchlist. 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 November 2021
Symbol 5Y YIELD YIELD O/U SCHW 1.04% 0.89% 14.42% LRCX 1.34% 1.08% 19.40% AMAT 1.37% 0.73% 46.72% UNH 1.39% 1.28% 7.91% LOW 1.63% 1.38% 15.34% MS 2.15% 2.75% -27.91% TXN 2.37% 2.46% -3.80% HUM 0.63% 0.61% 3.17% MA 0.55% 0.52% 5.45% TROW 2.59% 2.12% 18.15% WST 0.47% 0.16% 65.96% NVDA 0.29% 0.07% 75.86% ATVI 0.60% 0.60% 0.00% APH 0.89% 1.06% -19.10% MPWR 0.80% 0.46% 42.50% Average 1.21% 1.08% 17.61% Ave-Under 1.33% 1.50% -9.53% Above are the 15 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 “O/U” column represents potential undervalue; this is a comparison of the current dividend yield to the historical dividend yield. Collectively the 15 stocks offer a dividend yield of 1.08%, the potentially fairly valued and undervalued stocks offer a better average dividend yield of 1.50%.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 […]
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