As I'm writing this blog post, it's the second day of spring. While temperatures have cooled off a bit over the last few days here in Central Wisconsin, they are still pleasant with highs reaching into the low-40 degrees Fahrenheit.
With most of March 2022 in the books, now would be a good time to look ahead to next month at three compelling stocks that I'm considering adding to my dividend growth stock portfolio.
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Dividend Stock #1: Innovative Industrial Properties (IIPR)
The first stock that I'm thinking about adding to my portfolio in April is the U.S. cannabis real estate investment trust known as Innovative Industrial Properties. Since marijuana is still illegal at the federal level in the U.S., companies aren't able to receive financing from financial institutions. But IIPR purchases properties from marijuana companies and leases them back. This gives the latter funds to focus on growing operations.
This clever business model has allowed the stock to grow to 105 properties in 19 U.S. states. It led IIPR's adjusted funds from operations (AFFO) per share to surge 32.9% higher year-over-year to $6.66 in 2021.
As a result, it should come as no surprise that IIPR's dividends per share paid jumped 29.1% year-over-year to $5.46 in 2021. This represents a manageable AFFO payout ratio of 82%. President and CEO Paul Smithers pointed out in IIPR's recent earnings call that legal annual global cannais spending of $25 billion in 2021 was a fraction of the more than $400 billion market including illegal cannabis. As more markets legalize cannabis, this provides IIPR with a lengthy growth runway.
Despite its incredible growth prospects, IIPR is trading at a 2021 price to AFFO per share ratio of 29.7 at the current $198 share price (as of March 21, 2022). Throw in the stock's market-crushing 3.5% dividend yield and this makes IIPR an interesting dividend growth stock.
Dividend Stock #2: Comcast (CMCSA)
The second stock that I'd like to buy next month is the internet/cable provider and media conglomerate Comcast.
Comcast is a well-diversified business with growth catalysts like its broadband internet business. The broadband internet business was the driving force behind Comcast's 3.3% year-over-year increase in its overall customer relationships to 34.2 million in 2021.
This led Comcast's revenue 12.4% higher year-over-year to $116.4 billion in 2021 while adjusted EPS advanced 23.8% to $3.23 for the year. With an adjusted EPS payout ratio of 30.3% in 2021 ($0.98 in dividends per share paid divided by $3.23 in adjusted EPS), the stock has plenty of room to grow its dividend.
This is especially the case since analysts anticipate that Comcast's adjusted EPS will compound at a blistering 14.3% annual rate over the next five years. At the current $46 share price, the stock trades at a current year P/E ratio of just 13.1.
Comcast stock could provide a market-beating 2.3% dividend yield with robust earnings growth potential to my portfolio at a dirt-cheap valuation. That's exactly why the stock is firmly on my radar.
Dividend Stock #3: A.O. Smith (AOS)
The third stock that's on my watch list for April is A.O. Smith, which provides water heating and water treatment solutions to customers.
As Jason Fieber of Daily Trade Alert argued in a recent article, water could be the liquid gold of this century in the same way that oil was the liquid gold of the last century.
The necessity of water and a growing global population almost guarantees that the demand for A.O. Smith's products will only continue to increase. That's exactly why analysts expect that the stock's adjusted EPS will grow at an 8% annual clip over the next five years. Compared to the 15% rate posted in the past five years, that actually seems conservative in my opinion.
Regardless, the stock's growth forecast is definitely healthy. And with an adjusted EPS payout ratio of 35.1% in 2021 ($1.06 in dividends per share paid divided by $3.02 in adjusted EPS), the stock has flexibility to build on its status as a Dividend Aristocrat in the years ahead.
At the current $68 share price, AOS's market-topping 1.6% dividend yield can be purchased at a current year P/E ratio of 19.1. What's not to love about a business model essential to human life that can't be innovated away? Along with the reasonable valuation and solid growth outlook, AOS has caught my attention recently.
Because there are five Fridays in April, I estimate that over $3,000 in capital will be available for investment during the month. The weighted average net yield of these three dividend growth stocks is around 2.5%. I'll likely invest around $2,000 between the three of these stocks and the remaining $1,000 will be allocated to relatively safe, higher yielding dividend stocks.
Before even considering the dividend increases that I'm predicting for April, I will add around $90 to my net annual forward dividends during the month from dividend stock purchases.
Are any of IIPR, CMCSA, or AOS on your watch list for next month?
If not, what stocks are you thinking about buying?
As always, I appreciate your readership and welcome your comments below!
I own a small amount of AOS and it's done quite well for me with some strong dividend growth. Love the relatively simple business too. IIPR is interesting and one that I've looked at before. I'm curious if they'll be as attractive as what is effectively an alternative financing for a lot of the cannabis growers whenever it does become legal in the US. They are in a prime position to be able to offer liquidity/capital/financial flexibility since the cannabis companies can't access traditional financing. I wonder if there's parallels in other countries maybe Canada? As far as do a lot of the companies there still use the NNN model for their facilities.ReplyDelete
It's definitely hard to go wrong with AOS. I've thought about pulling the trigger on the stock for a while now. I believe IIPR's growth would moderately decelerate in the event of federal legalization. But I think all of the other net lease REITs in other industries serve as an example that growth could remain decent. There will always be some appeal to sale-leaseback transactions for businesses to expand. Thanks for commenting.ReplyDelete