Tuesday, August 24, 2021

September 2021 Dividend Stock Watch List

After hitting yet another all-time high of 4,480.26 on August 16, the S&P 500 pulled back a bit to close the week just above 4,440. Delta variant concerns and signaling of reduced asset purchases ahead from the recently released minutes of the Federal Reserve's July 27-28 meeting led the S&P 500 nearly a half percent lower to close out the week.

With most of my capital deployment in the books for August 2021, I'll now turn my attention to a few dividend stocks on my watch list for September 2021.


Image Source: Pexels

Dividend Stock #1: Lockheed Martin (LMT)

The first dividend stock on my watch list for September is Lockheed Martin. 

LMT has gotten off to a great start in the first half of this year, which is evidenced by its 4.4% growth in year-to-date revenue from $31.9 billion in H1 2020 to $33.3 billion in H1 2021, per LMT's Q2 2021 earnings press release (the source for all accompanying data, unless otherwise specified).

As a result of also repurchasing $1.5 billion or 4.2 million shares in the first half of the year according to its recent 10-Q, LMT's diluted EPS advanced 10.2% from $11.87 in H1 2020 to $13.08 in H1 2021.

LMT's backlog also remained healthy at the end of the second quarter, with backlog declining slightly from $147.1 billion at the start of the year to $141.7 billion to end the quarter. For context, this is the equivalent of over two years of revenue for LMT based on its guidance of $67.3-$68.7 billion for this year.

LMT's interest coverage ratio improved from 13.4 in the first half of 2020 to 15.5 in H1 2021, which suggests that the company has no issues in covering its interest expense with earnings before interest and taxes.

A payout ratio of just under 40% in the first half of this year means that the dividend is well covered ahead of its upcoming dividend increase. And a forward P/E ratio of less than 13 based on Yahoo Finance's average analyst estimate of $28.02 and the current price of $357.17 a share (as of August 20, 2021) indicates that the stock is quite cheap.

Dividend Stock #2: Merck (MRK)

The next dividend stock on my watch list for September is Merck.

MRK caught my attention after I recently covered the company's U.S. Food and Drug Administration (FDA) approval to treat advanced renal cell carcinoma (RCC) in combination with Lenmiva, which prompted me to start a position in the stock.

The FDA's approval of the drug combo is the second indication in as many months following the approval in July to treat advanced endometrial carcinoma, which is positioning Keytruda to overtake AbbVie's (ABBV) Humira in a couple years as the top-selling drug in the world. The drug also won't face any loss of exclusivity concerns until 2028 per FiercePharma, so MRK has plenty of time to diversify away from Keytruda.

MRK's interest coverage ratio of 12 (according to data sourced from MRK's Q2 2021 earnings press release, unless indicated otherwise) indicates the company's balance sheet is in decent shape.

Based on MRK's guidance for $5.47-$5.57 in non-GAAP EPS this year and a dividend per share obligation of $2.60, MRK's dividend payout ratio should clock in at a sustainable sub-50% level this year.

MRK's current price of $78.68 a share implies a current PE ratio of about 14, which is a good value for the 12.8% annual earnings growth that analysts are expecting over the next five years.

Dividend Stock #3: Visa (V)

The final dividend stock on my watch list for September is Visa (V).

Visa has benefited from the reopening global economy, which becomes clear by examining the company's results through the first nine months of its current fiscal year.

V has increased its YTD revenue by 4.8% year-over-year from $16.7 billion in 2020 to $17.5 billion in 2021 (all data sourced from V's Q3 2021 earnings press release, unless otherwise noted).

While V hasn't been able to give non-GAAP EPS guidance for this fiscal year due to the uncertainty surrounding COVID, analysts are anticipating 15.5% year-over-year growth from $5.04 in 2020 to $5.82 this year.

Compared to the $1.28 in dividends per share that will be paid out for this fiscal year, that would be a non-GAAP EPS payout ratio of just 22%. This leaves V's payout plenty of room to grow ahead of the 19.7% annual earnings growth that is expected over the next five years.

Additionally, V's interest coverage ratio improved from an already robust 28.9 in the nine months ended 2020 to 30.3 in the nine months ended this year.

While V at its share price of $231.36 isn't cheap at nearly 40 times this year's earnings forecast, its excellent growth prospects, low payout ratio, and great balance sheet are arguably worth the premium.

Concluding Thoughts:

My net annual forward dividends are likely to be around $1,945 heading into September. I'm anticipating that I will deploy somewhere in the range of $1,500-$2,000 in capital for next month and a number of dividend increases will be announced at that time, which should get me slightly beyond the $2,000 net annual forward dividend milestone.


Are any of LMT, MRK, and/or V on your watch list for September 2021?

If not, what stocks are you watching for the month?

As always, thanks for your readership and please feel free to leave your comments in the comment section below!


  1. LMT seems interesting and I wouldn't mind adding more to my position. V is always welcomed to add to, but I'd prefer it cheaper. I've just been DCA-ing into some positions recently hoping for a bit of a blip in the markets to give some better opportunities.

  2. PIP,

    Thanks for the comment. DCA-ing isn't a bad idea, especially with the market trending upward almost non-stop over the past year and a half, and really over the past decade-plus tbh.