Tuesday, October 19, 2021

November 2021 Dividend Stock Watch List

As I'm writing this blog post, only two weeks remain in October. This means that it's time to start thinking about putting several stocks on my watch list for the next month.

Without further ado, here are three stocks that I'm considering adding to in November 2021.

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Dividend Stock #1: Johnson & Johnson (JNJ)

The first dividend stock on my watch list for November 2021 is one that I haven't added to since this past April, which is Johnson & Johnson.

As I discussed in a Motley Fool article earlier this month on Johnson & Johnson, the stock is diversified with its three different segments of pharmaceuticals, medical devices, and consumer health. 

At $161 a share, Johnson & Johnson also offers a reasonably attractive mix of growth and value. That's because Johnson & Johnson expects to generate $9.60 to $9.70 in adjusted diluted EPS this year (page 2 of Johnson & Johnson's Q2 2021 earnings press release), which is a P/E ratio of less than 17 times this year's earnings.

Since analysts are forecasting 9% annual earnings growth for Johnson & Johnson in the next five years, this is a price to earnings growth or PEG ratio of less than 2.

And considering that Johnson & Johnson's adjusted diluted EPS payout ratio will be in the low-40% range for this year (based on $4.19 in dividends per share that will be paid and $9.60 to $9.70 in adjusted diluted EPS), Johnson & Johnson's dividend is in line to grow in the mid to upper-single-digits annually for the foreseeable future.

Pairing that kind of growth potential with a 2.6% yield from a Dividend King is an attractive proposition.

Dividend Stock #2: WEC Energy Group (WEC)

The next dividend stock for my watch list next month is one that I haven't added to since February, which is WEC Energy Group.

I elaborated in a recent Motley Fool article why I believe that WEC Energy Group is one of the smartest stocks that an investor can buy with $200.

The first reason is that WEC Energy Group is a utility with size and scale, serving 4.6 million customers across my home state of Wisconsin, Illinois, Michigan, and Minnesota (according to slide 2 of WEC Energy Group's September 2021 Investor Presentation). This would be very difficult to replicate, which results in a moat for the company.

Secondly, WEC Energy Group's EPS has grown at a 7% rate annually over the past five years and based on the company's capital spending plans over the next five years, that appears as though it will likely continue.

This is precisely what will allow WEC Energy Group to continue to grow its dividend around 7% annually for the foreseeable future.

When you combine WEC Energy Group's fairly valued 3% yield with 7% annual growth, there's a lot to like about annual total returns around 10%.

Dividend Stock #3: Main Street Capital (MAIN)

The third dividend stock on my watch list for November 2021 is Main Street Capital, which I haven't added to since I opened a position during the COVID crash of March 2020.

Main Street Capital is a business development company or BDC. This means that Main Street Capital invests in the under-served lower middle market (LMM) of businesses with annual revenue between $10 million and $150 million (all info sourced from Main Street Capital's Second Quarter 2021 Investor Presentation, unless otherwise specified). 

Main Street Capital invests in both debt and equity within the LMM. Main Street Capital also has only 7% exposure to its top industry of construction and engineering in its portfolio, which is a great deal of diversification. This is what helped Main Street Capital to nearly double its dividend from $0.33 per share paid in Q4 2007 (the date of its initial public offering or IPO) to $0.63 per share that will be paid in Q4 2021.

Main Street Capital's investment-grade BBB- credit rating from S&P on a stable outlook also differentiates it most other BDCs.

Throw in that Main Street Capital has been able to grow its net asset value per share (the basis on which the quality of a BDC is judged) 4.5% annually from 2007 to June 2021 and this is why Main Street Capital is the only BDC I ever plan on owning.

Main Street Capital's trailing twelve months' yield of 5.8% is only about 8% below its 13 year median yield of 6.3% per Gurufocus, which suggests the stock is only slightly overvalued.

While adding to Main Street Capital at $42 a share will bump up my average cost basis of $31 a share and I'm slightly overpaying, the stock makes up for this in my opinion with its quality. If Main Street Capital pulls back to $40 or less, I will be adding to my portfolio more aggressively. Otherwise, I'll nibble on the stock in the low $40s.

Concluding Thoughts:

Heading into November, I anticipate that my net annual forward dividends will be approximately $2,110.

I'm expecting that I will have right around $2,000 to invest in November 2021 including my selectively reinvested dividends, which could get me over the $2,175 mark in net annual forward dividends but not quite to $2,200 for the month.


Are any of JNJ, MAIN, or WEC on your watch list for next month?

If not, what stocks are you watching for November 2021?

As always, thanks for reading and I welcome your comments in the section below!

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