This article contains the dividend growth stocks that I will be keeping my eye on this month.  Continue reading to view Bert’s May Dividend Stock Watch List.

Bert’s May Dividend Stock Watch List

The coronavirus pandemic continues to dominate the news. In the last month, the economic relief checks were issued and the many loan programs began rolling.  The economy has received an injection of cash.  The price of oil continued to dominate the headlines as well, especially towards the end of the month.  The price per barrel continues to fall and heck, it was even negative for a period of time at the end of the month.

The low prices of oil have left me staring at my dividend stock portfolio and asking “What’s next?”  Unfortunately, one of my holdings, Schlumberger (SLB), dropped the hammer on their dividend and cut it 75%.  Exxon (XOM), Chevron (CVX), and my other large oil holdings have cut spending and pledged to maintain their dividend.  In the short term, yes, that is sustainable.  However, if the price of oil remains this low for an extended period of time, it is hard to see how the dividends can be sustained.  May, like April, will continue to surprise. What will be interesting to see is the impact of some of the states slowly starting to reopen their economy.  There has been talk of a slow roll out here in Ohio.  Let’s see how things mobilize and how it will impact company’s bottom lines.

Companies have finally started releasing Q1 earnings over the last few weeks. The results for some companies have been better than expected (and some significantly worse).  A lot of companies also pulled their 2020 guidance, as it is difficult to predict the next two months of activity, let alone the next eight!  With everything that has been going on, I have enhanced my dividend investing strategy over the last few months.

My investment decisions have become much more conservative. Right now, I am focusing on quality dividend growth companies that have demonstrated their ability to grow their dividend during various economic cycles (financial crisis, tech bubble, etc.).  Think our Top 5 Foundation Dividend Stocks and my “Always Buy Stocks.”  These lists were built to help identify the cream of the crop and exclusively include Dividend Aristocrats.  These last few months have been a humble reminder of WHY we were selective when building these lists.

Read – Top 5 Foundation Stocks for a Dividend Investors Portfolio

Read – Bert’s 5 Always Buy Stocks

Read – Who & What are Dividend Aristocrats? 

Our investment strategy will always start with the 3 metrics of our Dividend Stock Screener.  That will never change.  But this isn’t a normal economic environment.  We have now seen too many companies with either high debt or an evaporating consumer base cut their dividend as revenues plummet.  We have written several articles and created a few lists to help us build our watch lists to mitigate our exposure to this.  The articles include identifying Dividend Aristocrats with Low Debt (as high debt has caused several dividend cuts) and industries that are built to perform well in a pandemic.

Read – Dividend Aristocrats with Low Debt

Read -Industries Built for the Coronavirus and Dividend Investors

We can only make the best investment decisions we can with the information that is available at that moment in time.  With that in mind, here are the dividend growth stocks on my April Dividend Stock Watch List.  For each of the companies below, I will run them through the Dividend Diplomats Dividend Stock Screener! For each company, I will use their 4/3/20 share price, the average annual forward EPS per Yahoo! Finance, and their annual dividend.

Dividend Stock #1 – 3M Company (MMM)

This Divided King has always been a favorite of mine. In fact, they are one of my Always Buy holdings and my wife and I have established quite the position in this conglomerate. As the maker of N95 masks, 3M Company (MMM) has been in the news recently and the company is set to produce record medical equipment volumes to help battle this pandemic.  In fact, Lanny wrote an article discussing how the pandemic may result in very strong earnings for the company (click here to read).

Regardless of their role in the pandemic and the potential impact on the earnings, I love the company’s dividend history.  As a Dividend King, they have shown their ability to increase their dividend through many economic downturns. This one is no different, and I feel strongly about 3M’s ability to maintain their dividend and continue increasing in the future.  That is why they have earned the first spot on my dividend stock watch list today.

Still, let’s run 3M through our stock screener using their 4/24/20 stock price of $147.00 per share, projected earnings of $8.35 per share, and their annual dividend of $5.88 per share:

1. P/E Ratio – 17.6X – The company is not a tremendous discount when compared to the market.  But since they are trading at a lower multiple than the S&P 500, they pass this metric.
2. Dividend Payout Ratio – 70% – The company’s payout ratio is slightly higher than the 60% threshold we use.  I am comfortable with this, however, due to the company’s cash flow and the fact that the payout ratio is still well below 100%.  If the payout were 90%, I would be singing a different tune.
3. Dividend Growth History – Two words…Dividend King. Enough said.

Dividend Stock #2 – General Dynamics (GD)

While this company is new on my list, it is definitely not a stranger to our website.  Lanny has been watching and buying General Dynamics (GD) for months now. Finally, in April, I decided to follow along and initiate a position in GD.  I am now a proud shareholder of General Dynamics, making purchases in the following increments: 1 share, 2 shares, and 1 share.  Man I am loving this micro purchases now that most brokerages offer free trades.

General Dynamics is a Dividend Aristocrat that is a major player in the aerospace and defense sectors.  What jumps out to me about General Dynamics still announced a 7.8% dividend increase in March, despite the beginning of the troubling economic conditions. In a time where companies were pulling back drastically, General Dynamics still made the decision to increase their dividend.  It is exactly what I am looking to see in this current economic environment.

Currently, here is how GD stands up in our dividend stock screener. Hopefully you can see why I am watching them closely now. I’ll use their 4/24/20 stock price of $129.30 per share, projected earnings of $11.81 per share, and their annual dividend of $4.40 per share:

1. P/E Ratio – 10.94X – This is well below the current market. Pass
2. Dividend Payout Ratio – 37.3% – Also well below our 60% threshold.  Now I can see why the company was still able to comfortably increase their dividend.
3. Dividend Growth History – Dividend Aristocrat and they just announced a strong increase.  I know I covered this already, but they definitely pass this metric.

Dividend Stock #3 – Archer-Daniels Midland (ADM)

Archer-Daniels (ADM) is the one holdover from my April dividend stock watch list. I have a soft-spot for this Dividend Aristocrat. The company isn’t on the front lines in the super market, like many of the strong consumer staple brands. But you can bet that ADM is a major part of their ingredient listings.  Their other businesses may be slightly impacted by the pandemic, particularly the fuel components; however, with their manageable debt load (D/E is ~.5X) and their low dividend payout ratio, I am not that concerned about the company cutting their dividend during these tough economic times. Right now, a Dividend Aristocrat that makes me feel that way deserves a spot on my dividend stock watch list.

Read: 5 Consumer Staple Companies Yield 3%+ to Consider During the Pandemic

Here is how ADM stands up in our dividend stock screener.  I’ll use their 4/24/20 stock price of $35.99 per share, projected earnings of $3.17 per share, and their annual dividend of $1.14 per share:

1. P/E Ratio – 11.35 X – Like GD, this is well below the market’s current P/E Ratio
2. Dividend Payout Ratio – 35.9% – This is well below our 60% threshold. Strong pass.
3. Dividend Growth History – Dividend Aristocrat.  Like MMM and GD, they easily pass this metric.

Bonus Company – Realty Income (O)

Last, but not least, one of the dividend investing community’s favorite dividend growth stocks.  We all know about Realty Income (O), aka “The Monthly Dividend Paying Company.”  Realty Income has championed the slow and steady dividend increase approach, as Realty increases their dividend quarterly in very small increments (typically).  Realty Income’s stock price has fallen significantly over the last few months, and that is why they are on my watch list.

Taking a step back, a price pullback makes sense. The company owns real estate. Right now, people are not shopping and spending money in stores. In fact, many companies have had to shut locations down and some are having difficulty paying rent. Less rent payments, less revenue, less income, and less cash available to distribute to Realty Income’s shareholders.

So why are they on my watch list then?  Realty Income has managed their balance sheet and dividend payout remarkably well over the years.  Realty Income is trading below $50 per share and I grabbed a couple of shares when they were in the low $40s. If their price falls into the low to mid $40 per share range again, I will continue to add shares.  The other three companies are higher on my list, but Realty deserved the honorable mention.

Summary

When creating this list, my intent was to continue focusing on quality dividend growth stocks that have managed to increase their dividend through various economic cycles. I believe I have achieved this by selected the four companies listed above.  The most important thing during this time is to continue focusing on staying healthy and spending time with your loved ones. Whether that is in person, virtually, or by connecting with a simple phone call.  So everyone, let’s stay focused, continue hustling, and doing whatever we can to push ourselves one step closer to financial freedom.

What stocks are you watching this month? Are you considering the same companies? If not, why and what other companies would you watch instead? What stocks have you been buying lately?

Bert