September 2021 Watchlist – 3 Dividend Growth Stocks on my radar right now

“Sell in May and go away, but remember to come back in September” is the quote many of you must have heard one day from one your local pundits. It’s a stock market wisdom which seems a bit dubious to me, because I’ve seen conflicting research outcomes over the years.

Nevertheless, summer has ended for most of us and I personally hope that you had some time to recharge your batteries. It’s been a tough year with an ever-extending pandemic while at the same time we’ve seen lot’s of rain over here in Europe.

However, on the stock market it seems to be a never-ending summer which lasts already for more than a year. The major indexes keep on climbing, but not purely on earnings. Yes, earnings are strong, but the earnings multiples continue to grow even stronger.

That’s why it keeps on being a challenge for us to find attractive dividend growth stocks. Value does matter, because it influences our dividend yield on costs. And we want the most yield out of each Euro we deploy, because it brings us quicker to our ultimate expense/dividend income crossover point. This while the dividends need to be safe, so it’s really not an easy search for attractive dividend stocks right now.

Actually, sometimes it feels like the stories about old communistic times.

Long queues, empty shelves.

But even then, there was often some food available, so we should stay optimistic. And like I often remind myself: it’s a market of stocks, not a stock market.

So let’s stay optimistic and keep on searching for those Dividend Growth Stocks that nicely fit in our dividend portfolios today.

Let me kick it off by sharing 3 dividend growth stocks that I find reasonably priced right now and which I may consider initiating a position in or may buy more of.

I’m also curious to hear from you and what you are considering to buy in the upcoming weeks. Would you mind sharing that with me in the comment section below this post?


The Kroger Company

The Kroger Company ($KR | ISIN: US5010441013) has been founded in 1883 in Cincinnati and it is currently the second largest retailer after Walmart.

If you are European then you might not be so familiar with this company other than from hearsay. And that’s no wonder, because as per my knowledge, the company operates solely in the United States (35 States).

I personally consider Kroger as the Ahold Delhaize equivalent in Europe, but at the same time it’s also one of the biggest competitors of Ahold.

The reason why I stumbled on this company is due to Warren Buffett who has been accumulating quite a significant position in the last 2 years.

It didn’t pass my own dividend stock screener, because it’s dividend currently yields 1.83% and this is generally speaking too low for me. But I’m glad that I still stumbled on it, because I like a lot about what I’m seeing.

Like Ahold, it’s trying to be the leader in providing fresh groceries to its customers and ideally to their doorsteps. This means that the company invests heavily in their digital transformation which is definitely a necessity nowadays.

And it’s doing it well as can be witnessed by their growth numbers. Revenue has been increasing for many years and it grew from 98 Billion in 2014 to 132 Billion today. At the same time their gross profit margin has been increasing from 20.6% to 22.8% right now.

It did have a little hick-up in their earnings in the last fiscal year in which it reported 1.93 USD per share. Management is optimistic though, because it just recently increased their guidance again:

We now expect our two-year identical sales stack to be in the range of 10.1% to 11.6%. We expect our adjusted net earnings per diluted share to be in the range of $2.95 to $3.10. ” 

This gives the company a Forward Price to Earnings of 15, which I find attractive under the current stock market circumstances.

All that being said, the company has a payout ratio of 44% based on current EPS and 27% based on their forward guidance. The company has a dividend growth streak of 15 years with a compounded annual dividend growth rate (CAGR) of 11.51%.

I consider this a low yield stock, but with above average dividend growth potential.

However, it doesn’t automatically mean that I will purchase it around these prices. It’s rather on my watchlist to seriously start doing further analysis on it. If I still like it afterwards then I might initiate a position this month.

Unilever Plc

Unilever Plc ($AMS:UNA | ISIN: GB00B10RZP78) got back on my watchlist again for the first time since March this year.

Nothing fundamentally has changed since then, but the stock price has been coming down lately. It currently trades at 47.00 Euro while not that long ago it was trading around 50 Euro.

It also means that it’s getting closer to my own fair value estimate of 45 Euro.

It’s a Tier-1 company as part of dividend portfolio allocation strategy so I’m generally using every opportunity to buy more of it. It’s also because I’m still in the accumulation stage for Unilever and about half way right now.

That’s why I also find this company very interesting from an option trading point of view. My plan is to sell another put option this week with a strike price at 45 Euro and an expiry date in October.

That’s how I can actually earn some additional income (aka a dividend) while I’m waiting for Unilever to hit my target buy price. I see it as getting paid for waiting and that’s not a bad situation to be in.

Regarding Unilever’s dividend profile: Unilever has a dividend history of 55 years without a dividend cut and it currently yields 3.63% with a 5 year dividend CAGR of 7.07%.

But that’s not where the shareholder distribution stops, because the company also has a 3 billion share buyback program underway. This means a potential share reduction of about 2.5% coming our ways.

Last but not least, the FCF payout ratio is 59.3% and this gives enough room for future dividend hikes (EPS payout ratio is 81%).

I find their dividend safe with a low risk on a dividend cut anytime soon.

Allianz SE

It’s time for a non-consumer staple stock on my watch list, because I will be paying close attention to Allianz this month ($ETR:ALV | ISIN: DE0008404005).

In case you have missed it, I actually initiated a position in the company not too long ago after a long outstanding purchase order got triggered.

The price dropped overnight into my value zone at the time due to an announced litigation related to their alpha funds. I have listened to their most recent earnings call and I treat this as a case that management can settle fairly easily.

That’s also the reason why I find the stock attractive around the 200 Euro share price and below.

Around these prices the dividend yields 4.8% which is a very lofty dividend compared to the broader indexes and their industry peers (i.e. $MUV2).

For some reason the market also gives Allianz a relative low 9.5 P/E multiple. I’m OK with, because it allows me to accumulate into this stock at a higher earnings yield.

Having said that, The dividend payout ratio is 46% based on their earnings and I personally consider their dividend safe.

Last but not least, they also announced a new 750 million share buyback program which will run until the end of this year. It means a share count reduction of approximately 0.9% in just 4 months.


Final Thoughts

These are the 3 dividend stocks that I find reasonably priced right now. But I wanted to also let you know that I’ve been accumulating some additional Alibaba shares in August.

It’s a non-dividend paying stock and part of my 10% allocation to value and growth stocks in my portfolio.

I find the company too hard to ignore from a valuation point of view, even if you discount a 30% Chinese government risk on top of it. I simply think that the “pendulum” swung a bit too far to the other side.

If you are interested in how much I own right now and when I bought shares in $BABA, then have a brief watch at my latest video.

That’s it from my side. Let me know what you think about this watchlist and don’t forget to share your suggestions as well. The more ideas, the better it might be for the community and the readers.

Yours Truly,

European Dividend Growth Investor


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Disclaimer

I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.

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European DGI

It's my desire to retire early via Dividend Growth Investing as a passive income stream. This is not easy and especially when living in Europe. That's why I started this blog and share my journey: to give you a European perspective.
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Gary
Gary
2 months ago

Unilever down over 2% today, around the 46 euro mark – can’t see what the trigger is for this, but a well-timed article

Frank
Frank
2 months ago

Hi European DGI, thank you for your inspiring articles which I appreciate a lot and always look forward to. I follow you some month and opened a position in Ahold Delhaize in early April thanks to your recommendation. I received already two dividend payments and the stock raised 18 %. Pretty good! I also hold a position in Allianz SE and think about to purchase some more. My personal recommendation right now would be Intel. Still one of the biggest (maybe THE biggest?) Semiconductor Company in the world. Increasing revenue, 55% gross margin, buybacks and a P/E ratio of 11,9… Read more »

George
George
2 months ago

EDGI keep on the good work. It is something that is missing, a good writer with european focus.

European DGI
European DGI(@administrator)
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Reply to  George
2 months ago

Thank you for the kind words George 👍