Publish date:

7 Dividend Growth Stocks For October 2021

These Dividend Contenders are trading at discounted valuations and are poised to deliver solid total returns and generous dividend payments over the next five years.

My monthly series 7 Dividend Growth Stocks identifies seven high-quality dividend growth (DG) stocks for further analysis and possible investment. I select DG stocks from Dividend Radar, which tracks stocks trading on U.S. Exchanges with dividend increase streaks of at least five years. Dividend Radar is maintained and published by Portfolio Insight every Friday as a free resource to DG investors.

To highlight different DG stocks every month, I use different screens to narrow down approximately 750 Dividend Radar stocks. This month, I screened for Dividend Contenders trading well below my Buy Below prices with solid growth and income prospects, and safe dividends.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

In case you missed them, here are links to previous articles in this series:

Screening and Ranking

For this month’s article, I used the following screens:

  • Dividend Contenders (dividend increase streaks of 10-24 years).
  • Investment Grade stocks (quality scores 15-25)
  • Dividend Safety Scores > 60 (stocks with dividends deemed Very Safe or Safe)
  • Stocks likely to deliver annualized returns of 8% according to the Chowder Rule
  • Stocks likely to have a yield on cost of at least 4% after five years of investment
  • Price is at least 10% below my risk-adjusted Buy Below price

I use DVK Quality Snapshots to assign quality scores (out of 25) to each DG stock.

Simply Safe Dividends provide Dividend Safety Scores for most DG stocks. Stocks scoring 81-100 are deemed Very Safe, while stocks scoring 61-80 are considered safe.

The Chowder Number (C#) is a growth-oriented metric measuring the likelihood of annualized total returns of at least 8%. I color-code the C# column based on the Chowder Rule, with green indicating candidates likely to deliver annualized total returns of 8%.

The 5-year Yield on Cost (5-YOC) is an income-oriented metric indicating what your YOC would be after buying a stock and holding it for five years, assuming the current 5-year DGR is maintained. I color-code the 5-YOC column green for yields greater than 4%.

I routinely estimate the fair value (FV) of DG stocks. To estimate FV, I collect FV estimates and price targets from several sources, such as Morningstar and Finbox. I also estimate fair value using each stock’s five-year average dividend yield. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

To adjust for risk, I require a discount of at least 10% for stocks with quality scores of 15-18. For quality scores 19-22, I require FV or below. I allow a premium of up to 5% (quality scores 23-24) for higher-quality stocks and a premium of up to 10% (quality score 25). I present these risk-adjusted prices as Buy Below prices in my tables.

The latest Dividend Radar (dated September 24, 2021) contains 747 stocks.

Exactly seven stocks pass this month’s very stringent screens!

I ranked these candidates by sorting their quality scores (as determined by DVK Quality Snapshots) in descending order and used the following metrics, in turn, to break any ties:

The tables below show the top seven stocks in rank order.

7 Top-Ranked Dividend Growth Stocks for October

Here are top-ranked dividend growth stocks that pass this month’s screens:

Screen Shot 2021-10-01 at 9.02.18 AM

I own the five highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors:

The Fwd Yield column is colored green if Fwd Yield5-Avg Yield.

Key metrics and fair value estimates of October’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar). Utilities are identified with a U in the C# column.

Key metrics and fair value estimates of October’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar). Utilities are identified with a U in the C# column.

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

Screen Shot 2021-10-01 at 9.08.07 AM
LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

Amgen Inc. (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of severe illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

Screen Shot 2021-10-01 at 9.10.35 AM
AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

Pinnacle West Capital Corporation (PNW)

PNW is a holding company that provides retail and wholesale electric services primarily in the state of Arizona. Its subsidiary, Arizona Public Service Company, is a vertically integrated electric company that generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. PNW was founded in 1920 and is headquartered in Phoenix, Arizona.

Screen Shot 2021-10-01 at 9.12.04 AM
PNW non-GAAP EPS and dividends paid (TTM), with stock price overlay

PNW non-GAAP EPS and dividends paid (TTM), with stock price overlay

The Allstate Corporation (ALL)

Founded in 1931 and headquartered in Northbrook, Illinois, ALL is a holding company engaged in property-liability insurance and life insurance in the United States and Canada. The company sells automobiles, homes, and other properties insurance products under the Allstate, Esurance, and Encompass brand names. It also sells life insurance and voluntary accident and health insurance products.

Screen Shot 2021-10-01 at 9.13.22 AM
ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

The Southern Company (SO)

SO, along with its subsidiaries, operates as a public electric utility company. The company constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. SO was founded in 1945 and is headquartered in Atlanta, Georgia.

Screen Shot 2021-10-01 at 9.14.55 AM
SO non-GAAP EPS and dividends paid (TTM), with stock price overlay

SO non-GAAP EPS and dividends paid (TTM), with stock price overlay

Magellan Midstream Partners, L.P. (MMP)

Founded in 2000 and headquartered in Tulsa, Oklahoma, MMP is a publicly traded partnership engaged in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. MMP owns the longest refined products pipeline in the USA, with access to about half of the nation’s refining capacity.

Screen Shot 2021-10-01 at 9.16.22 AM
MMP non-GAAP EPS and dividends paid (TTM), with stock price overlay

MMP non-GAAP EPS and dividends paid (TTM), with stock price overlay

Tyson Foods, Inc. (TSN)

TSN is a worldwide food company that operates through four segments: Chicken, Beef, Pork, and Prepared Foods. The company offers its products under various brands, including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Chef Pierre, and Golden Island brands. TSN was founded in 1935 and is headquartered in Springdale, Arkansas.

Screen Shot 2021-10-01 at 9.17.47 AM
TSN non-GAAP EPS and dividends paid (TTM), with stock price overlay

TSN non-GAAP EPS and dividends paid (TTM), with stock price overlay

Concluding Remarks

Screen Shot 2021-10-01 at 9.06.47 AM

In this article, I ranked Dividend Contenders with Safe or Very Safe dividends trading at discounted valuations and are poised to deliver solid total returns and generous dividend payments over the next five years.

I’m long five of this month’s seven candidates. My positions are all essentially full-sized positions based on my dynamic and flexible portfolio target weighting strategy, so I’m not planning to add shares at this time.

Of the two stocks I don’t own, SO looks the most interesting. What I don’t like about SO is that its Fwd Yield is not higher than its 5-Avg Yield. That means SO is trading at a bit of a premium relative to historical yields. Additionally, SO is the only stock that does not have a positive twelve-month upside estimate, according to Portfolio Insight.

I’m partial to stocks with higher quality scores, so I would recommend looking at the following stocks first, depending on your investment style and goals:

  • For income investors: PNW, SO
  • For value investors: ALL, PNW
  • For growth-oriented investors: ALL, AMGN, LMT

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

7 Best Materials Sector Dividend Stocks

3 Dividend Kings With Favorable Valuations