Growth, Dividends, Dividend Growth, And Upgrades
We’re closing in on the start of the fiscal Q1 2021 reporting season and the upgrades keep rolling in. Today’s look is at a group of stocks that are not only poised for sustained growth in the post-pandemic world but ones that pay nice dividends and have a positive outlook for dividend growth. With secular tailwinds to drive revenue and the analyst community to drive share prices higher, we view these stocks as a best-idea for dividend growth investors in 2021.
1. Texas Instruments: Positioned To Outperform In 2021
Texas Instruments (NASDAQ:TXN) got a nod from Keybanc which called the stock out for its long-term growth potential. In their view, Texas Instruments’ decision not to increase prices in the face of a global microchip shortage is one that will drive market share gains in the near and long-term.
That, coupled with the company’s supply-chain advantage, has it set up for widening margins and accelerating earnings as well. In our view, they had us with the words semiconductors and sealed the deal with widening margins and outperformance.
The semiconductor sector is fundamental to nearly every industry on the planet at this point in the game and will be in high demand for years to come. As for the dividend, Texas Instruments pays a 2.2% yield with a 60% payout ratio, 21% distribution CAGR, and 15-year history of past increases.
Texas Instruments Stock Chart
2. Domino’s Pizza Delivers Value To Shareholders
Domino’s Pizza (NYSE:DPZ) was initiated with a Bull rating by Citibank even as competitor Papa John's (NASDAQ:PZZA) got called out by BMO Capital. According to Citibank, Domino’s has several growth drivers working for it even as the pandemic boost fades.
In addition, Domino’s trades at an “undemanding” valuation compared to Papa John's at only 28X earnings compared to Papa John's 38X and we concur. Shares of Domino’s are yielding a little over 1.0% with prices near $370 which isn’t much but the payment is very safe.
Domino’s payout ratio is sub-30% and the balance sheet is sound. With an 8-year history of dividend increases, a low payout ratio, and 20% CAGR we not only expect to see the 9th distribution increase, but for it to be a large one.
Domino’s Pizza Stock Chart
3. Proctor & Gamble A Top Pick At Morgan Stanley
Long a staple in the consumer staples industry, Procter & Gamble (NYSE:PG) got some analyst love from Morgan Stanley who called it a top pick in a recent note to clients. According to them, the company’s revenue and earnings should outpace peers for the foreseeable future with notable strength in the baby business. A shift to higher-margin, premium, and growth categories is expected to drive a margin expansion as well.
Morgan Stanley holds an Overweight rating on the stock with a $165 price target making it one of the more aggressive analysts on Wall Street. As for the dividend, Proctor & Gamble is a Dividend King having increased its distribution every year for 64 years. The $3.16 in annualized payments is worth 2.3% in yield and growth is very sustainable. The payout ratio is about 55% so not too high and the CAGR is low.
If you are looking for higher yield and sustainability more than growth this could be the stock you are looking for.
Proctor & Gamble Stock Chart
4. Kellogg To Sustain Mid Single-Digit Growth
The analysts at Argus upped their price target on Kellogg Company (NYSE:K) after reevaluating the company’s growth outlook. The new outlook assumes a 6% growth rate for the next five years with a 3% CAGR after that. That puts the stock up at $75 based on their modeling and that could be a low estimate.
The company has reduced its debt and freed up cash-flow in a rising cash-flow environment putting it on track to increase the dividend and buy back shares. Trading at only 16X earnings and paying out over 3.3% in yield, the stock is certainly attractive. Based on the balance sheet, cash flow, and dividend history we expect the next increase could come as soon as the next dividend declaration and in the range of 3%to 5%.
Kellogg Stock ChartLeave a comment