As I'm writing this blog post, Memorial Day, the unofficial start of summer, is just 8 days away. We have been fortunate enough here in Central Wisconsin to receive meaningful precipitation over the past week, which was more than welcomed by yours truly, especially considering my rant last week about it looking more like a desert where I live by the day.
With that aside, I will be going over a few of my dividend stock picks heading into June.
Massive spoiler alert: This list marks arguably my first of the series that tilts more toward value and yield-oriented picks than growth-oriented picks.
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Dividend Stock #1: Philip Morris International (PM)
What would be more fitting to start off an income-oriented dividend stock watch list than Philip Morris International (hereafter referred to by its ticker, PM)?
To be fair, I actually believe that PM is more of an income and growth hybrid pick given its reputation as the ultimate ESG pick of its industry.
Since I last covered PM in March on Seeking Alpha, PM produced strong operating results in the first quarter, with the company posting 2.9% YoY net revenue growth and a 590 basis point expansion in adjusted operating income margins, which helped the company to generate an all-time high adjusted diluted EPS figure of $1.57, marking a 21.5% YoY growth rate (data sourced from PM's 2021 First-Quarter Results Presentation).
PM continued to make tremendous progress on its stated mission of building a smoke-free future, with its smoke-free product revenues growing from 21.7% of total revenues in Q1 2020 to an astounding 28.0% in Q1 2021.
Simply put, PM is transitioning to not only a less harmful product line in the future, but the product line is more profitable than the legacy business, which explains why adjusted OI margins expanded significantly.
To that point, Yahoo Finance analysts are forecasting 12.8% annual earnings growth over the next 5 years, while PM is trading at merely 16 times this year's forecasted earnings.
At the current share price of $97.42 (as of May 23, 2021), I believe that PM offers a clear path to 10%+ annual total returns over the next decade with its 4.9% yield, conservative mid-single digits annual earnings growth, and slight multiple expansion over the long-term.
Dividend Stock #2: STORE Capital (STOR)
The next stock on my list is STORE Capital (hereafter referred to by its ticker, STOR), which despite the slightly disappointing operating results in the first quarter, is a solid pick IMO.
First, STOR is trading at about 17 times this year's AFFO/share guidance of $1.90-$1.96 (based on the $33.65 share price as of May 23, 2021).
Despite the fact that STOR's AFFO/share of $0.47 was below last year's figure of $0.49 (per STOR's Q1 2021 earnings call), it's worth noting that the bulk of Q1 2020 was without COVID-19's significant impact, whereas all of Q1 2021 was subject to some COVID disruptions.
Cash collections continued to improve from 93% in Q1 2021 to 95% at the start of Q2 2021 in April, which is an encouraging trend that I will continue following.
After a 2019 that saw AFFO/share of $1.99, STOR is looking to recover from the impact of COVID, which I estimate the company will rebound from to deliver AFFO/share growth over 2019 levels next year.
Despite the challenges of the past year, STOR remains a company that I believe has the potential to deliver annual mid-single digit AFFO/share growth on a consistent basis.
STOR's 4.3% yield, annual mid-single digit AFFO/share growth potential, and roughly static valuation multiple would allow for the stock to meet my 10% annual total return target over the next decade from the current share price.
Dividend Stock #3: American Electric Power (AEP)
Wrapping up my dividend stock watch list, is American Power (hereafter referred to by its ticker, AEP).
AEP delivered solid operating results to start off 2021, with operating EPS surging 12.7% from $1.02 in Q1 2020 to $1.15 in Q1 2021 (data sourced from AEP's 1st Quarter 2021 Earnings Release Presentation).
AEP reaffirmed its guidance of $4.55-$4.75 in operating EPS, which would fall just outside AEP's 5-7% long-term growth target at the midpoint.
Using AEP's midpoint operating EPS figure of $4.65 and comparing it to the current share price of $86.65 (as of May 23, 2021), AEP is trading at just under 19 times this year's earnings, which I believe is reasonable for a utility growing firmly in the mid-single digits annually.
I believe that AEP's 3.4% yield, mid-single digit annual earnings growth potential, and slight multiple expansion should translate into the stock meeting my 10% annual total return requirement over the next decade.
While the past few months of capital deployment have been heavily concentrated into growthier dividend stocks, I anticipate that I will be returning to more of a value and income-oriented approach for June.
That's not to say that I won't also be adding to more growth-oriented dividend stocks in June, but it certainly won't be to the extent of the past few months.
Are any of PM, STOR, or AEP on your watch list heading into June 2021?
If not, what dividend stocks are on your watch list?
As always, thank you for your readership and I look forward to your comments in the comment section below!
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