Tuesday, October 12, 2021
Tuesday, October 5, 2021
As I'm writing this blog post, it's the last day of September. It's hard to believe, but there are only three months left in the year! Fall is here in Central Wisconsin, but you wouldn't know it based on the temperatures in the high-70s Fahrenheit today.
At any rate, it's time for me to discuss my capital deployment activity in September 2021 and the dividend stocks that I purchased for the month.
previous post of this series, it will be rare going forward that I discuss capital deployment within my employer-sponsored retirement account. That's because I stopped working there nearly three months ago to pursue writing on a near full-time basis with The Motley Fool and Seeking Alpha.
Tuesday, September 28, 2021
As I'm writing this blog post, fall just started a couple days ago and September will be over in less than a week. It won't be long before we'll need to set our clocks back an hour here in Central Wisconsin and it'll be dark by 5 PM.
That means it's time to talk about the eight dividend increases that I received in September. I accidentally lumped in Visa (V) with expected September dividend increases despite the company routinely announcing its dividend increases in October (not sure how that happened!).
Even though I'm only expecting three dividend increases for October, the month should still be a nice boost to my portfolio.
Actual Dividend Increases in September
Dividend Increase #1: Realty Income (O)
Dividend Increase #2: W.P. Carey (WPC)
Dividend Increase #3: Philip Morris International (PM)
Dividend Increase #4: Lockheed Martin (LMT)
Dividend Increase #5: STORE Capital (STOR)
Dividend Increase #6: Verizon (VZ)
Dividend Increase #7: American Tower (AMT)
Dividend Increase #8: Microsoft (MSFT)
Dividend Freeze: General Mills (GIS)
Expected Dividend Increases for October
Dividend Increase #1: Visa (V)
Dividend Increase #2: American Electric Power (AEP)
Dividend Increase #3: Pinnacle West Capital (PNW)
Tuesday, September 21, 2021
As I'm writing this blog post, the start date of fall is just one week away. Even more importantly, October is a couple weeks away.
Why is October so significant?
Because I will be receiving three paychecks during the month as opposed to the usual two, so I will have even more funds than normal to invest. Let's take a look at three dividend stocks not already in my portfolio that I am keeping my eyes on for October.
Image Source: Pexels
Dividend Stock #1: Omnicom (OMC)
The first stock on my watch list for October is the large-cap advertising and marketing conglomerate, Omnicom.
Omnicom's diluted EPS declined nearly 28% from $6.06 in 2019 to $4.37 last year.
While Omnicom was predictably hit somewhat hard in 2020 with COVID-19 emerging as a pandemic and the resulting drag on the economy, the company is set to rebound this year and beyond.
Omnicom's diluted EPS is set to advance slightly higher than 2019's figure of $6.06 to $6.09 this year as the economy picks back up and advertising spending recovers based on the average analyst estimate. Better yet, analysts expect that Omnicom will resume mid-single-digit earnings growth, when diluted EPS is anticipated to increase 4.4% from $6.09 this year to $6.36 next year.
Through the first six months of this year, Omnicom also maintained an interest coverage ratio just under 8 ($1.05 billion in earnings before interest and taxes/$134 million in interest costs). This implies that the balance sheet is relatively healthy and that interest expenses can easily be covered by EBIT.
Despite this news, Omnicom is trading at less than 12 times this year's forecasted diluted EPS. This is moderately lower than the company's historical P/E ratio around 15 to 16, which makes Omnicom a good value play.
With $2.75 in dividends per share scheduled to be paid out this year, Omnicom's diluted EPS payout ratio will be in the mid-40% range. I believe that this makes Omnicom's current 3.91% dividend yield (based on the current share price of $71.67 as of September 12, 2021) safe.
Dividend Stock #2: McDonald's (MCD)
The second dividend stock on my watch list for October is the massive fast-food chain McDonald's.
Similar to Omnicom, McDonald's was adversely impacted by the onset of COVID-19 last year. This resulted in McDonald's adjusted diluted EPS declining 22.8% from $7.84 in 2019 to $6.05 in 2020.
However, McDonald's is on track to fully recover and then some this year, with analysts expecting adjusted diluted EPS to surge 50.1% from $6.05 last year to $9.08 this year.
McDonald's also was able to generate an interest coverage ratio of slightly over 8 through the first half of this year ($4.93 billion in EBIT/$597 million in interest expense), which like Omnicom, indicates that McDonald's can handily service its debt.
While McDonald's isn't a bargain at 26 times this year's earnings and 24 times next year's earnings, it also isn't too expensive considering the quality of the business. I have wanted to own McDonald's for years and have never purchased it because I was always waiting for the perfect price, but I've come to learn over the years that a fair price is good enough for a world-class business. McDonald's can do the rest in the wealth creating process.
McDonald's will likely pay out $5.25 in dividends per share (assuming a 7% increase in the quarterly dividend in September to $1.38) against $9.08 in EPS this year, which would be a dividend payout ratio in the high-50% range.
McDonald's 2.16% yield at $239.18 a share (and soon to be around 2.3% yield with the upcoming dividend increase) appears to be safe based on a quick analysis of the balance sheet and dividend obligation, which are two of the main reasons I want to own the stock.
Dividend Stock #3: Raytheon Technologies (RTX)
When that recovery occurs next year, RTX's interest coverage ratio will be much healthier.
My net annual forward dividends will end this month at around $2,025, which is another all-time high for my portfolio. And since I'm expecting around $2,500 available to invest for October between my capital contributions and dividends, October will be one of my heaviest months of capital deployment for this year.
I'm very much looking forward to seeing if I can reach the $2,100 mark or so for the month with my capital deployment and the dividend increases that I'm expecting for October.