Tuesday, August 3, 2021

August 2021 Dividend Stock Watch List

 It's hard to believe that as I'm writing this blog post, July is in the books and only five months remain in 2021. That should just motivate us to give that much more effort to achieve our goals in the time that remains this year!

With that aside, I will discussing a few dividend stocks on my watch list for August 2021.

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Dividend Stock #1: Viatris (VTRS)

The first stock on my watch list for August is Viatris.

Since Upjohn spun-off from Pfizer with Mylan to form Viatris, I had been mostly watching from the sidelines with my initial shares received from the spin-off last November.

In recent months, I have added to my Viatris position because the company is obscenely undervalued due to the novelty of the recently formed company.

Viatris recognizes the need to pay down its $24 billion long-term debt load (data sourced from Viatris' Q1 2021 earnings press release), which is why the company is committed to paying down $6.5 billion by 2023. At around $18 billion in long-term debt by the end of 2023 and $6.5+ billion in adjusted EBIDA, the company's net debt to EBITDA ratio will be much more manageable in the not so distant future at less than 3.

The management of Viatris is taking the necessary steps possible to pay down a significant portion of its debt between now and 2023, which is reflected by the company's annualized dividend/share being $0.44 compared to analyst estimates for this year of $3.53 in EPS -- a payout ratio of just 12%!

Once the company is able to complete its deleveraging goal in a couple years, it's not unreasonable to expect healthy dividend hikes for years to come.

At less than four times this year's forecasted EPS, Viatris offers a very safe 3.1% yield with plenty of room to grow. This is a stock that I believe can realistically get to a high-single-digit yield on cost by the end of the decade for those who buy at the current price of $14.22 a share (as of August 1, 2021).

Dividend Stock #2: Pfizer (PFE)

The second stock on my watch list for August is one that I had already alluded to in the section above, which is Pfizer.

For those looking for a more in-depth explanation of why I will be adding to my Pfizer position, I would refer interested readers to my recent article on The Motley Fool on Pfizer, as well as AbbVie (ABBV).

It really comes down to the fact that even without its COVID-19 vaccine, Pfizer crushed it in the second-quarter. The company grew its non-COVID-19 vaccine revenue by double-digits year-over-year in Q2 2021.

Based on the midpoint of Pfizer's updated adjusted diluted EPS guidance of $3.95-$4.05 for 2021 and the current share price of $42.81, the company is trading at less than 11 times this year's earnings!

The market is pegging this company at a valuation that suggests there is no growth in its future, but Pfizer's year-to-date operating results beg to differ.

A 3.6% yield, mid-single digit annual earnings growth potential in the long-term, and moderate valuation expansion make it likely that Pfizer will meet my 10% annual total return requirement over the next decade.

Dividend Stock #3: J.M. Smucker (SJM)

The third stock on my watch list for August is J.M. Smucker.

After a couple weaker dividend increases in 2019 and 2020, the stock crushed my dividend announcement expectations last month, raising its quarterly dividend 10% from $0.90/share to $0.99/share.

J.M. Smucker's annualized dividend/share of $3.96 is quite secure considering that analysts forecast the company will generate $8.84 in EPS this year, which works out to a mid-40% payout ratio for the year.

Based on J.M. Smucker's current $131.11 share price, the stock is trading at just under 15 times this year's predicted earnings and offers a 3% yield.

J.M. Smucker isn't going to be my biggest winner in terms of share price appreciation or dividend growth, but it's a steady company that offers a safe yield with mid-single-digit annual earnings growth at a reasonable valuation.

Concluding Thoughts:

Even though August will mark my first full month since I left my day job to focus more on writing at The Motley Fool and Seeking Alpha, I anticipate that I will be sticking in the $1,500-$2,000/month range for capital deployment.

With my net annual forward dividends at just under $1,880 heading into August, I'm positioned to pass the $1,900 mark during the month.


Are any of VTRS, PFE, or SJM on your watch list for the month?

If not, what dividend stocks are on your watch list for August?

I appreciate your readership and look forward to your comments in the comment section below!

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