3 Must-Own Dividend Growth Stocks to Buy and Hold for 2021

NASDAQ: MSFT | Microsoft Corp. News, Ratings, and Charts

MSFT – While the pandemic forced many companies to cut or suspend their dividends, Microsoft (MSFT), Home Depot (HD), Costco Wholesale (COST), and United Parcel Service (UPS) have been steadily growing their dividend payments. These four stocks are also well positioned to soar based on their underlying business strength.

Investing in dividend stocks might be the best option for those who want to ensure a steady stream of income when market movements are uncertain. Current times are unprecedented and it is even harder to predict how the markets will perform going into 2021. This makes it an ideal time for dividend investing.

The ongoing spread of the coronavirus may last well into 2021, as there is no vaccine or treatment available yet to contain the spread. There is also a significant change in consumer and business behavior due to the rapid digital transformation that will shape the fortunes of the markets in 2021.

Hence, it may be best to invest in stocks that not only have a time-proven business model, but also have a strong record for dividend payouts. These stocks will provide steady income into 2021, while also holding the potential for capital appreciation.

In fact, dividend stocks have delivered decent returns this year as well. This is evident from the Vanguard High Dividend Yield ETF’s (VYM) 34.7% gains since March.

In addition to possessing strong underlying strength, Microsoft Corporation (MSFT), The Home Depot, Inc. (HD), Costco Wholesale Corporation (COST), and United Parcel Service, Inc. (UPS) have been increasing their dividend payouts and have a long history of paying dividends. So, investing in these stocks could be a safe move until there are some certainties in the market’s movements.

Microsoft Corporation (MSFT)

MSFT develops and markets software products and services globally. The company also provides cloud computing services through Microsoft Azure. MSFT’s stock has gained 37.2% so far this year.

The company announced a $0.56 dividend per share for the fourth quarter, which is an increase of 9.8% from the earlier dividend amount. The company’s dividend payout has a five-year CAGR of 10.5%. The current dividend yield is 1.04%, while the four-year average dividend yield is 1.65%.

The company has been working on improvements to its Teams platform, which helps people work and collaborate remotely. The new Teams app will display live captions so that users can easily tell who is speaking and what is being said. Further, the company is gearing up for the launch of the latest installment in its Xbox gaming console line called Xbox Series X/S.

MSFT is expected to witness revenue growth of 8.9% for the quarter ending December 2020, and 10.7% in 2021. The company’s EPS is estimated to grow 17.5% in 2021, and at a rate of 14.5% per annum over the next five years.

How does MSFT stack up for the POWR Ratings?

B for Trade Grade

B for Buy & Hold Grade

B for Peer Grade

B for Industry Rank

B for Overall POWR Rating

The stock is also ranked #8 out of 96 stocks in the Software – Application industry.

The Home Depot, Inc. (HD)                                                                

HD is a retailer of home improvement products. The company’s offerings include building materials, lawn and garden products, home maintenance, and more. The company also provides professional service programs. HD’s stock has gained 29.5% so far this year.

The company has distributed $1.5 dividend per share over the last three quarters, which is an increase of 10.3% from the earlier dividend amount. The company’s dividend payout has a five-year CAGR of 23.68%. The current dividend yield is 2.12%, while the four-year average dividend yield is 2.2%.

The company will be opening three new distribution centers in Georgia to meet the growing demand for flexible delivery along with pick-up options. The company has been working on improving its delivery system for same-day and next-day delivery options. This will help the company stay relevant and grow its market share in the “new-normal” caused by the pandemic, since delivery is fast-becoming the preferred way for customers to shop.

HD is expected to witness revenue growth of 8.3% for the quarter ending January 2021, and 13.6% in 2021. The company’s EPS is estimated to grow 11% in 2021, and at a rate of 7.1% per annum over the next five years.

It’s no surprise that HD is rated a “Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade and a “B” in Buy & Hold Grade, Peer Grade, and Industry Rank. In the 69-stock Home Improvement & Goods industry, it is ranked #4.

Costco Wholesale Corporation (COST)

COST operates several membership-based warehouses through which it sells branded and private-label products. The company also runs pharmacies, food courts, photo processing centers, gas stations, optical dispensing centers, and hearing-aid centers. The company’s stock has gained 28% so far this year.

The company has been distributing $0.7 dividend per share over the last three quarters, which is an increase of 7.7% from the earlier dividend amount. The company’s dividend payout has a five-year CAGR of 14.5%. The current dividend yield is 0.74% while the four-year average dividend yield is 2.02%.

Earlier this year, the company acquired Innovel, which provides end-to-end logistics services. This move could help COST bolster its delivery operations. The company has also partnered with Instacart to offer same-day delivery services in Canada. The company’s movement towards expanding its delivery operations could not have come at a more opportune time due to changing consumer behavior and growing demand for delivery services.

COST is expected to witness revenue growth of 8% for the quarter ending February 2021, and 7.4% in 2021. The company’s EPS is estimated to grow 10.8% in 2021 and at a rate of 7% per annum over the next five years.

COST’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. In the 18-stock Grocery/Big Box Retailers industry, it is ranked #1.

United Parcel Service, Inc. (UPS)

UPS provides package delivery, logistics, and transportation services in the United States and internationally. The company also provides financial services. UPS’s stock has gained 38.9% so far this year.

The company has been distributing $1.01 dividend per share over the last four quarters, which is an increase of 5.2% from the earlier dividend amount. The company’s dividend payout has a five-year CAGR of 7.45%. The current dividend yield is 2.48%, while the four-year average dividend yield is 3.24%.

The company is gearing up for the holiday season by hiring both full-time and part-time employees. The company had a stellar third quarter due to increasing demand from e-commerce along with small and medium sized businesses. The company’s revenue grew 15.9% compared to the same period last year. These gains are expected to stay as customers change their shopping behavior in favor of delivery options.

UPS is expected to witness revenue growth of 10.8% for the quarter ending December, 2020, and 4.7% in 2021. The company’s EPS is estimated to grow 10% in 2021 and at a rate of 9.6% per annum over the next five years.

UPS’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” in Trade Grade and a “B” in Buy & Hold Grade and Industry Rank. In the 9-stock Air Freight & Shipping Services industry, it is ranked #1.

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MSFT shares were trading at $223.40 per share on Thursday afternoon, up $7.01 (+3.24%). Year-to-date, MSFT has gained 42.79%, versus a 10.69% rise in the benchmark S&P 500 index during the same period.


About the Author: Aaryaman Aashind


Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...


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