As I'm writing this blog post, the temperatures here in Central Wisconsin reflect that of a pleasant summer with highs in the low-80s Fahrenheit and lows in the mid-50s Fahrenheit. Since it often gets oppressively hot and humid where I live, I'm very much enjoying the more ideal temperatures.
With that aside, I will finally be getting to the dividend stocks that are on my July 2021 watch list.
Dividend Stock #1: Pinnacle West (PNW)
The Arizona electric utility that provided service to roughly 1.3 million customers throughout most of Arizona in 2020, with the exceptions of half of Phoenix, the Tucson metropolitan area, and Mohave County in the northwestern part of the state (per Pinnacle West's recent 10-K
) recently caught my attention.
Due to the huge influx of residents into Maricopa County's Phoenix-Mesa-Chandler metropolitan area (according to Census.gov
), Pinnacle West has benefited from consistent customer base growth year after year, and this trend continued in the first quarter of this year, with 2.1% customer growth for the utility (per Pinnacle West's Q1 2021 earnings press release
The company demonstrated its resiliency last year, growing its diluted EPS by 2.1% over 2019 in arguably the most challenging operating year in recent memory.
Looking ahead over the next 3 years, Jason Fieber pointed out in a recent post
that CFRA is anticipating 5% annual earnings growth during that time (more or less in line with past growth), which should enable the company to grow its dividend at least at a 5% clip given the company's healthy mid-60% diluted EPS payout ratio in 2020 (data sourced from Dividend and Stock History page
While Pinnacle West isn't dirt cheap by any means, the company is a fair buy when considering Yahoo Finance's average analyst estimate of $4.97
in diluted EPS for 2021 is less than 17 times this year's earnings against the current share price of $83.65 (as of July 11, 2021).
Pinnacle West's 4.0% yield (triple the S&P 500's 1.3%
), mid-single digit annual earnings growth potential, and potential for slight valuation multiple expansion should translate into high-single digit to low-double digit annual total return potential over the next decade.
Dividend Stock #2: Clorox (CLX)
Given that the consumer staples company best known for its eponymous Clorox brand paid out $4.44 in dividends per share in FY 2021 and that the company is anticipating $7.45-$7.65 in adjusted EPS for the year ended June 30, 2021 (data sourced from Clorox's Q3 2021 earnings press release
and Clorox's Dividend page
), Clorox's adjusted EPS payout ratio for the fiscal year will be around 59% at the midpoint figure of $7.55 in adjusted EPS.
This leaves the company with a slight bit of room to expand its payout ratio, which leads me to believe that the dividend will grow ever so slightly ahead of whatever earnings growth the company can deliver in the long-term.
When taking into consideration that Clorox is trading at just under 24 times this year's earnings and that the stock's 2.6% yield is double that of the S&P 500's 1.3%, I believe that while Clorox isn't a bargain, the company is about fairly priced at the current share price of $180.88 (as of July 11, 2021). It's certainly not significantly overpriced as it was earlier this year and last year when it was well into the $200s.
Clorox's 2.6% yield in combination with 6.0-7.0% annual earnings growth and a static valuation multiple make it likely the company will deliver annual total returns around 9-10% over the next decade.
Dividend Stock #3: Kimberly Clark (KMB)
The third and final dividend stock on my watch list for July is Kimberly Clark, a large-cap consumer staple in its own right.
Kimberly Clark's reasonable payout ratio and fair operating fundamentals allowed the company to deliver a 6.5% increase to its quarterly dividend to start this year from the previous $1.07/share to $1.14/share.
Even after the solid dividend increase, Kimberly Clark's adjusted EPS payout ratio is positioned to be around 61% at the midpoint of its $7.40-$7.55 guidance for 2021, which strikes a nice balance between rewarding shareholders with immediate income and also retaining enough earnings to invest in growing the business.
Factoring in that Kimberly Clark is trading at 18 times this year's midpoint adjusted EPS and the 3.5% dividend yield is nearly triple that of the S&P 500's 1.3% (based on the $135.02 share price as of July 11, 2021), I believe that Kimberly Clark is another business trading right around fair value.
Kimberly Clark's 3.5% yield and 5.0-6.0% annual earnings growth make it a safe income play with dividend growth that will likely outpace inflation in the years ahead, which make it a solid buy in my opinion.
Since I have one week of earned and unused vacation pay from my day job coming my way, as well as my income from my Seeking Alpha and Motley Fool side hustles, I anticipate that I will have over $3,000 in capital to invest during July 2021.
I'm very excited to deploy my capital into the 3 businesses above, as well as several others to advance my net annual dividends to new heights. I anticipate that I will be investing over $3,000 in capital at an average weighted net yield of 3.5% in July, which would take my net annual forward dividends from about $1,780 to begin the month and just under $1,900 to head into August.
Are any of PNW, CLX, or KMB on your watch list for this month?
If not, what dividend stocks are on your watch list at this time?
Thanks for reading and I look forward to your comments in the comment section below!
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