February 2022 Dividend Stock Watch List

As I'm writing this blog post, we're already more than two weeks into 2022. The temperatures have largely remained frigid here in Central Wisconsin, which is backed up by sub-zero Fahrenheit low temperatures.

With that out of the way, I'm going to go over a few dividend stocks that I'll be observing heading into and throughout February.

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Dividend Stock #1: Duke Energy (DUK)

The first stock that I'm interested in buying for February is the large utility Duke Energy. While I own a fractional share of DUK in my M1 Finance portfolio, I don't yet own whole shares of the stock. 

And based on the fact that DUK is trading at a forward P/E ratio of just under 19 at the current $104 share price (as of January 16, 2022), the stock is trading at a reasonable price. This is the case with the stock's 4%+ annual earnings growth that analysts are forecasting over the next five years.

Given that DUK paid $3.90 in dividends per share in 2021 and is expected to generate $5.24 in EPS for the year, this equates to a manageable 74.4% payout ratio. This should allow DUK to deliver 4% annual dividend growth, which is an attractive combo with the stock's 3.8% dividend yield. DUK has raised its dividend for 17 years straight, which makes it a Dividend Contender.

In addition, DUK maintains a reasonably healthy balance sheet. That's because the company's interest coverage ratio of 2.9 through the first three quarters of 2021 leaves it with a buffer to withstand a temporary downturn in operating fundamentals (data sourced from page 16 of DUK's Q3 2021 earnings press release).

Dividend Stock #2: Coca-Cola (KO)

The second stock that I'm keeping tabs on for next month is the mega-cap beverage maker Coca-Cola, which I indirectly own in my retirement account via the Capital Income Builder (CAIBX) mutual fund. As I explained in my recent Motley Fool article, KO has plenty of room for growth in developing markets. That's why analysts forecast that KO will deliver 10% annual earnings growth over the next five years.

KO paid $1.68 in dividends per share in 2021, which works out to a 73.4% payout ratio against the $2.29 in adjusted diluted EPS that analysts anticipate in 2021. When considering the high expectations for earnings growth in the medium term, I wouldn't be surprised to see 6% to 7% annual dividend growth. This would also enable KO to lower its payout ratio and retain more capital to generate future growth for shareholders.

And KO's 2.7% dividend yield can be purchased at a rational forward P/E ratio of 25 at the current $61 share price (as of January 16, 2022). Simply put, KO is a classic dividend growth stock with a track record as a Dividend King. Since the stock is steadily growing its earnings and the payout ratio is on the high end of sustainable, KO should be able to build on its reputation as a Dividend King going forward.

Dividend Stock #3: Mastercard (MA)

The third and final stock that I'll be following in February is the payments processing stock Mastercard. As I explained in a Motley Fool article on the stock last month, COVID-19 should actually accelerate MA's growth from 22% annually over the past five years to 26% in the next five years. That's because more consumers have been interested in new payment methods as a result of the pandemic.

MA paid dividends per share of $1.76 in 2021. Compared to the $8.27 in adjusted diluted EPS that is expected for the year, this is equivalent to a 21.3% dividend payout ratio. This payout ratio should give the stock the flexibility to continue its 10 year dividend growth stock in the future. MA's 0.5% dividend yield isn't very high, but the potential for double-digit annual dividend growth makes up for the low yield.

MA also boasts a nearly flawless balance sheet, which is another positive for shareholders. And the stock is priced at a forward P/E ratio of 35 and a $371 share price (as of January 16, 2022), which appears to be a fair price for the stock's quality.

Concluding Thoughts:

Heading into February, I anticipate that I will once again be able to invest over $2,000 into these high-quality dividend growth stocks, among others as well. I'm looking forward to continuing to put capital to work in many more wonderful stocks as the year progresses.

Discussion:

Are any of DUK, KO, or MA on your watch list for February?

If not, what stocks are you interested in for the month?

I appreciate your readership and welcome your comments below!