May 2021 Dividend Stock Watch List

Hot off the month of April, which likely will see nearly $3,000 in capital deployed during the month, I am anticipating that May will mark yet another month of capital deployment around $3,000.

May will turn out to be a better month of capital deployment than expected due to the fact that I ended up overestimating what my income would be for 2020 when applying for Marketplace health insurance coverage, so I received a decent tax refund.

Lately, I have been emphasizing growthier dividend stocks because as my dividend income continues to grow, I am shifting to the mindset that I will need just as many true dividend growth stocks as I will need higher yielding, less growthy dividend stocks to combat inflation.

It's for this reason that I will be highlighting several growth-oriented dividend stocks in my May 2021 watch list.

Image Source: Pexels

Dividend Stock #1: Abbott Laboratories (ABT)

Abbott Labs, the parent company from which AbbVie (ABBV) was spun off, is a solid dividend growth stock that I have wanted to own for years.

Since I was more of a yield-hungry investor in the first few years of my investing journey, I snubbed the stock, always thinking that the yield was never enough.

What I failed to realize back then, is that Abbott Labs is a high-quality business that very rarely trades at an enticing valuation or yield.

I realize now that Abbott Labs' interest coverage ratio is reasonably strong at 10 for last fiscal year, the company is forecasting 37.0% adjusted diluted EPS growth this fiscal year, and the stock is trading at only 24 times this year's adjusted diluted EPS forecast (data sourced from Abbott Labs' Q4 2020 earnings press release and Yahoo Finance).

When I take those factors into consideration, as well as the fact that Abbott Labs' adjusted diluted EPS payout ratio is likely going to be in the mid-30% range for 2021, I'm fine with the company's ~1.5% yield because I know high-single digit to low-double digit annual growth over the medium-term will occur.

Overall, I like Abbott Labs' total return potential at the current price of $123.31 a share (as of April 25, 2021) as the 1.5% yield, high-single digit annual earnings growth potential, and a static valuation multiple, make it likely that Abbott Labs' will meet my 10% annual total return requirement over the next decade.

Dividend Stock #2: L3Harris Technologies (LHX)

Moving to the next dividend growth stock on my watch list for May 2021, I am looking to add to my position in L3Harris Technologies for the same reasons that I recently discussed in an article on Seeking Alpha.

L3Harris' non-GAAP EPS and FCF payout ratios around 30% during 2020 leave plenty of room for expansion in the payout ratio over the long-term, the company initiated guidance calling for mid-single digit revenue growth in 2021 paired with high-single digit to low-double digit non-GAAP EPS growth for the year, L3Harris' balance sheet is among the best in its industry, and the stock is trading at just over 16 times the midpoint of its non-GAAP EPS guidance for the year, which I estimate is a 15% discount to the stock's fair value (based on the stock's current price of $211.02 a share as of April 25, 2021).

Coming off the recent 20% dividend increase, shares of L3Harris yield 1.9% and offer the strong likelihood of 8.0-9.0% annual earnings growth with valuation multiple expansion on top of it, which makes it likely that shares will easily meet my 10% annual total return requirement over the next decade.

Dividend Stock #3: Microsoft (MSFT)

The third and final dividend growth stock that will be on my watch list heading into May 2021 is Microsoft.

Similar to Abbott Labs, Microsoft has been a stock I wanted to own from the very beginning of my investing journey, but for the same reasons, I never ended up pulling the buy trigger to this point.

Absent a massive runup in the stock price in the next couple weeks, I'm looking to make that change in May because while Microsoft trades at 35 times this year's average earnings forecast via Yahoo Finance (at the share price of $261.96 as of April 25, 2021), analysts are expecting Microsoft's diluted EPS to grow at an 18.2% clip annually over the next 5 years, which works out to a PEG ratio below 2.

When considering that Microsoft is the only other publicly traded U.S. company with a triple A credit rating from the ratings agencies aside from Johnson & Johnson (JNJ), and that the company has a variety of growth catalysts, including its Azure cloud platform (second only to Amazon's Web Services business in market share), Office 365, and the recent $22 billion HoloLens deal over the next decade with the U.S. Army, Microsoft's valuation isn't as steep as it initially appears.

Microsoft's diluted EPS payout ratio is positioned to be in neighborhood of 31% during 2021 (factoring in a 10.7% increase in the quarterly dividend that I expect will be announced in September), which along with the earnings growth, will allow Microsoft to be generous with its dividend increases and share repurchases going forward.

Even factoring in a reversion to Microsoft's diluted PE ratio to 30 in the years ahead (as Microsoft's massive revenue base works against its growth potential) and conservative 15% annual earnings growth from 2022 to 2025, I estimate that through 2025, Microsoft is set to deliver annual total returns well in excess of 10%.

Concluding Thoughts:

Unless there are huge runups specifically in ABT and MSFT over the next few weeks, I plan to add both, in addition to LHX during the month of May.

While equally weighted positions in these three stocks would average a starting yield in the 1.4% range, it's important to note, especially to my younger self, that these three stocks will undoubtedly offer high-single digit to low-double digit annual dividend growth over the medium-term, which will boost that yield on cost considerably.

Discussion:

Are you considering purchases of ABT, LHX, or MSFT in May 2021?

If not, what dividend stocks are on your watch list heading into May 2021?

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

The Importance Of Limiting Discretionary Spending In Building Wealth

While contemplating the financial progress that I have made over the past several years and writing my previous blog post outlining the potent combo of dividend growth investing and frugality, it occurred to me that what has really allowed my investment portfolio to make it to this point in a relatively short period of time is my natural tendency to limit my discretionary spending.

Fortunately, I have been able to live on just over $100-$125/month in discretionary spending for virtually all of my adult life. 

This is a stark contrast to the nearly $1,500/month that the average American adult spends on non-discretionary items (i.e. drinks, takeout delivery, gym memberships). That's damn near enough to fully max a 401(k) each year, which is why I believe it is incredibly important to make sure your discretionary spending is providing you with enough value to justify it. 

Image Source: Pexels (nothing against Starbucks, but this was the best free stock photo discretionary spending item I could find)

Total Monthly Discretionary Spending: $107-$122/month

Quick Serve Restaurant purchases: $50-$60/month

For the past several years, my parents and I have had an agreement that we would rotate every other week paying for the cost of eating out each Friday night.

Given that we typically spend around $25 each visit at businesses, such as McDonald's, Burger King, Culver's, and so on, and there are typically two visits each month that I am responsible for covering, my typical month of spending is $50-$60.

Since my family and I generally eat home made meals the other 6 days a week, I believe this spending item can be justified as it provides a nice respite from meal prep and something to look forward to at the end of each week.

Cricket smartphone service: $20/month

While a smartphone is practically an extra appendage for most these days (including yours truly), countless generations lived without smartphones in the past, so I must confess that this is a discretionary spending item.

Fortunately, my family is on a 5 line plan with Cricket Wireless for $20 a line/month (which is owned by AT&T, so I see a small kickback on my costs every month). Given that I receive 5 GB of data and unlimited talk and text for just $20/month, I am entirely comfortable keeping this as a recurring expense.

Clash of Clans Gold Pass/Other Purchases: $10-15/month

I'm not too much of a gamer, with the exception of the freemium mobile strategy smash hit game Clash of Clans. If there has ever been any game that revolutionized the mobile gaming world as much as Clash of Clans, I have yet to hear about it. 

Clash of Clans developer Supercell has arguably been the most community friendly developer in the industry as Chief Pat noted in a recent video, where he ranked Clash of Clans as his favorite Supercell game.

The Gold Pass offers a great value at just $5/month as it helps to dramatically lower the cost of troops to attack enemy bases, lower the cost of troop upgrades in the laboratory, lower wall/building upgrades, as well as hero upgrades. 

On a near monthly basis, Clash of Clans also offers solid values, such as Book of Building/Book of Everything items (which instantly finish upgrades and can save over two weeks of time), and so forth.

Since I began playing CoC in late 2013, I have played it much more on than off, quitting on two occasions for roughly 2 and a half years combined (primarily d/t school and work obligations). The gameplay rarely gets stale and I envision myself playing this game several hours a week for many more years.

GoDaddy Shared webhosting: $10/month (annual subscription)

The annual expense of hosting this blog works out to roughly a $10/month average, which isn't too steep of a price to pay for a hobby that consumes a couple hours of my time each week.

Patreon: $8/month

I use this service to subscribe to Jason Fieber's exclusive content, in which he details the activity in his portfolio, and updates his portfolio accordingly at the beginning of each month. I have followed Jason since probably around 2015. He and I think quite a bit alike in terms of our investing strategy, so I think $8/month to get his insights into what sectors and stocks are undervalued to the point that he is investing his own money in said sectors and stocks is worth every penny.

Peacock Streaming: $5/month

In the age of streaming, Peacock offers a decent value at $5/month when considering that tons of WWE Network content and live PPVs come with the service, which is great considering that I have followed the WWE since I was a kid in the early 2000s.

Avast SecureLine VPN/Avast Driver Updater: $4/month (annual subscription)

Let's face it, in a world that is as dependent on technology as it is, Avast's SecureLine VPN and Driver Updater programs for $2/month each on an annual subscription are lifesavers. I can go about my business in public checking my accounts without worry that a hacker is going to potentially have access to my sensitive information. The Driver Updater program helps my laptop to stay up to date and run as smoothly as possible, which is of the utmost importance for a device that I use upwards of 10 hours a week.

Concluding Thoughts:

I am fortunate to live with my parents as my discretionary spending would be probably double or triple if I were required to pay for my own internet and cook my own meals each night (I'd admittedly probably eat out more frequently than I am now if that were the case, which is why I should really learn the valuable skill of cooking in the next few years to be honest). 

Overall, I'm very satisfied with my discretionary spending in the ballpark of $100-$125/month, as I feel it strikes a nice balance between "treating myself" in the present and saving for my future.

This minimal discretionary spending has allowed me to achieve a savings rate in excess of 60%, and as a result, I anticipate I will hit $100k in investments probably in the next 2 years, assuming a relatively flat market.

Discussion:

Are there any discretionary spending items in your budget that you are considering dropping? Or do you feel fairly justified in each item as I do?

Thanks for reading and I look forward to your comments in the comment section below!

A Reflection On The Power Of Dividend Growth Investing & Frugality

Over the past couple days, I have been thinking about just how far I have come since I began my investing journey in September 2017. As I'm just a couple years away from approaching the milestone of my net annual forward dividends matching the income that I earned at my first job as a part-time cashier at Shopko in my first two years of undergrad, I thought it was an apt time to examine the power of dividend growth investing and frugality in real time.

Image Source: Pexels

As I alluded to in a post a couple years ago comparing my income writing for Seeking Alpha and working as a cashier at Shopko, I made an average of around $4-5k annually over my two years at Shopko.

At the present moment, my net annual forward dividend income is $1,602, which is despite the fact that my portfolio has sustained numerous dividend cuts over the past year, and that I didn't start investing meaningful capital of more than a few hundred dollars a month until I completed my Bachelor's degree in August 2019 as I noted in my post of lessons that I learned after two years of investing.

Assuming that I invest $15k from May to December of this year, and that I invest $20k in 2022 and another $20k in 2023 at a 4.0% net yield (which I believe will ultimately prove conservative as it factors in no increase in earnings over the next couple years), my net annual forward dividends will be within my range of average annual earnings while I was a part-time cashier in college.

If you had told me just 6 years ago when I began my first job in college that in less than a decade, my net annual forward dividends would match that of my earnings at my first job, I really wouldn't have believed you.

It's breathtaking to think that in the span of just 6 years since my first job, I have paid nearly $40k in tuition/books and accumulated a dividend portfolio worth nearly $50k while never even cracking $40k in annual earnings.

A 60%+ savings rate combined with the power of dividend growth investing is capable of almost literally moving mountains and parting the Red Sea in financial terms, which is what makes me so damn excited for the next 6 years of this journey!

Concluding Thoughts:

I hope that my short story outlined in this post. the story of a guy that has been extraordinarily ordinary in virtually every respect of his life, serves as motivation to those that are in the very beginning stages of their journey, and as a reminder to those that are further along, that dividend growth and frugality are arguably the most potent one-two punch to the financial promised land.

If I'm capable of making such tremendous progress in a relatively short amount of time adhering to the principles of dividend growth investing and frugality, I truly believe everyone is capable of doing so!

Discussion:

Are there any milestones within your DG portfolio that you have thought about lately?

As always, thanks for reading and I look forward to your comments in the comment section below!

March 2021 Dividend Income

As I'm writing this blog post, it's early April in Central Wisconsin and 99.9% of the snow/ice has melted away. The next couple weeks are forecasted to bring highs in the 50s to 60s and lows in the 40s to 50s Fahrenheit, which is a bit above average for the area.

After being largely forced to exercise indoors in January and February, I'm looking forward to really enjoying the outdoors, especially over the next couple months before temperatures start to really heat up.

With that aside, I'll delve into the crux of this post, which is to discuss my dividend income for March 2021.

Analysis:

During the month of March 2021, I received $165.45 in net dividends against the $165.60 in net dividends that were received in December 2020, which represents a 0.1% quarterly decline.

On a year over year basis, the $165.45 in net dividends received in March 2021 equates to an 83.2% growth rate compared to the $90.31 in net dividends received in March 2020.

Digging deeper into the net dividends that I received in March 2021, I collected $90.83 in net dividends from 24 companies in my Robinhood account, $12.04 in net dividends from 6 companies in my Webull account, $62.07 in net dividends from the Capital Income Builder (CAIBX) holding in my retirement account, and $0.51 in net dividends from 25 companies in my M1 Finance account.

The $0.15 decline in my net dividends received from December 2020 to March 2021 was a result of the following activity within my portfolios:

Due to CAIBX's cut to its quarterly dividend in the first quarter from $0.50/share to $0.40/share and the special dividend that was paid in December 2020, but not in March 2021, my net dividends received from my CAIBX holdings declined $27.60 on a quarterly basis.

Another headwind to my portfolio during March 2021, was the $2.53 in Robinhood margin expenses that I didn't have in December due to my recent reuse of Robinhood margin, which lowered my net dividends by as much in March.

My net dividends advanced $3.48 in my Robinhood account as a result of the timing of Digital Realty Trust's (DLR) dividend payment and recent dividend increase.

The net dividends collected from PepsiCo (PEP) within my Robinhood and M1 Finance accounts were boosted by $3.09 due to my recent addition of 1 share to my portfolio, as well as the timing of the dividend payment.

My net dividends received from L3Harris Technologies (LHX) in my Robinhood account were $1.36 higher as a result of LHX's dividend increase and my recent purchase of another share of the stock.

The net dividends collected from Lockheed Martin (LMT) within my Robinhood account were boosted by $2.60 due to my recent purchase of an additional share of the stock.

My net dividends received from Home Depot (HD) in my Robinhood account were $0.30 higher as a result of HD's recent dividend increase.

The net dividends collected from Realty Income (O) within my Robinhood account were boosted by $0.47 due to my recent purchase of an additional 2 shares of the stock.

My net dividends received from Prudential Financial (PRU) in my Robinhood and Webull accounts were $0.45 higher as a result of PRU's recent dividend increase.

The net dividends collected from American Electric Power (AEP) within my Robinhood account were boosted by $5.18 due to my recent addition of AEP to my portfolio.

My net dividends received from United Parcel Service (UPS) in my Robinhood account were $0.04 higher as a result of UPS's recent dividend increase.

The net dividends collected from Johnson & Johnson (JNJ) within my Robinhood account were boosted by $1.01 due to my recent purchase of an additional share of the stock.

My net dividends received from Amgen (AMGN) in my Robinhood account were $3.68 higher as a result of my purchase of an additional 2 shares and AMGN's dividend increase last December.

The net dividends collected from Pfizer (PFE) within my Robinhood account were boosted by $1.29 due to my purchase of additional shares of the stock, as well as PFE's dividend increase last December.

My net dividends received from WEC Energy Group (WEC) in my Robinhood account were $3.39 higher due to my purchases of the stock over the past few months.

Finally, the net dividends collected from Aflac (AFL) within my Robinhood and M1 Finance accounts were boosted by $3.64 as a result of AFL's recent dividend increase and my purchase of whole shares.

Concluding Thoughts:

While my dividend income was essentially flat from December 2020, this was due to the annual special dividend in December within my CAIBX mutual fund and a 20% cut to the quarterly regular dividend from $0.50/share to $0.40/share.

Backing out the CAIBX special dividends in December 2020, my non-special net dividends would have increased 12.5% from $147.10 in December 2020 to $165.45 in March 2021.

When taking into consideration the elimination of my $5/monthly Robinhood Gold fee, the reduction of margin expenses to zero, anticipated capital deployment, and dividend increases, I am confident that June's dividend income will be within $10 of the $200 mark.

Discussion:

How was your March in terms of dividend income? 

Did you receive any first time dividends from stocks as I did with AEP and WEC?

As always, thanks for reading and I look forward to your comments in the comment section below!