My Top 5 Dividend Growth Stocks For October 2021

There are thousands of stocks in the market. But which stocks are the best stocks? I’d argue the best stocks are high-quality dividend growth stocks. Why?

These shares represent equity in world-class enterprises that pay reliable, rising dividends.

And they’re able to pay reliable, rising dividends because they’re producing reliable, rising profits.

By routinely investing my own money into high-quality dividend growth stocks, I was able to go from below broke at age 27 to financially free at 33.

By the way, I explain exactly how I achieved financial freedom in just six years in my Early Retirement Blueprint. If you’re interested, you can download a free copy of my Early Retirement Blueprint here.

As great as these stocks are as a whole, some of them look better than others right now. Today, I want to tell you my top five dividend growth stocks for October 2021. Ready? Let’s dig in.

My first dividend growth stock pick for October 2021 is AbbVie (ABBV).

AbbVie is a global pharmaceutical company.

With a market cap of $193 billion, this is one of the largest pharmaceutical companies in the world. And pharma is an area where scale matters. Scale gives a company the ability to invest heavily into R&D and bring new, exciting products to market. More products means more potential sales and profits. Indeed, since being spun off in 2013, AbbVie has done almost nothing but ring up higher revenue and profits. Revenue has compounded at an annual rate of 13.57%. And EPS has a CAGR of 22.44%.

That has given them plenty of financial firepower to pay out a big, growing dividend.

Yep. This is a dividend that’s both big and growing at an impressive rate. The stock yields 4.8%. That’s more than three times higher than what the broader market offers. And AbbVie has increased its dividend every year since being spun off, now good for nine consecutive years of dividend increases. The five-year DGR is 18.5%. And with a payout ratio of 41.4%, based on midpoint guidance for this year’s adjusted EPS, the dividend is in a great position to continue growing.

After a recent pullback, I think the stock looks undervalued.

I recently highlighted, analyzed, and valued AbbVie in a video, estimating intrinsic value at a bit over $123/share. We’re currently priced at about $109/share here. So I see a lot of upside. Meantime, you get to collect a yield near 5% and enjoy sizable, consistent dividend increases. What’s not to love?

My second dividend growth stock pick for October 2021 is Cummins (CMI).

Cummins primarily designs, manufactures, and distributes engines.

This $33 billion (by market cap) manufacturing giant is a super high-quality company across the board. The fundamentals from top to bottom are excellent. However, like a lot of other companies out there, 2020 hit the bottom line hard. Over the last decade, revenue has compounded at an annual rate of 1.04%. And EPS has a CAGR of 2.58%. But those results look kind of rough only because of a terrible 2020. CFRA is predicting that Cummins will compound its EPS at an annual rate of 15% over the next three years. That’s a nice rebound.

And that business rebound should keep the dividend growth engine running very smoothly.

Already, Cummins has increased its dividend for 16 consecutive years. The five-year DGR is 8.5%. And the stock yields 2.5%. So you’re getting a yield that beats the market almost twice over, and you’re getting a high-single-digit dividend growth rate. There’s a lot to like here. Plus, the payout ratio is a low 39.0%. When you combine that low payout ratio with the double-digit EPS growth expectation, I suspect plenty of large dividend increases are coming down the line for Cummins.

This stock has been a laggard this year, up only 3%. And I think that’s where the long-term opportunity is.

If you buy a stock after it’s gone on a huge run, you could be setting yourself up for a fall. On the flip side, this stock is down nearly 20% from its recent peak. I analyzed and valued Cummins only a few weeks ago, showing why shares could be worth almost $250/each. The stock’s currently priced at $228. So we’ve got a nice gap to fill here between price and value. And you’re collecting a market-beating dividend growing at an inflation-beating rate while you wait. You could do a lot worse than that in this market.

My third dividend growth stock pick for October 2021 is 3M Co. (MMM).

3M is  a diversified global manufacturing conglomerate.

Investors should always be willing to go where the deals are. And with two industrials in a row, you already know where I think some deals can be found. The 3 M’s may as well stand for money, money, money. Revenue has compounded at only 0.93% over the last decade, while EPS has a CAGR of 5.01%. Not huge. But 3M is so consistent.

Want evidence of that consistency? How about their legendary dividend growth track record?

3M has increased its dividend for 63 consecutive years. Yep. That’s money. They’re not just a Dividend Aristocrat, which requires at least 25 consecutive years of dividend increases. They’re a Dividend Aristocrat more than twice over. They need a totally new category for 3M. The 10-year DGR of 10.8% is strong. And you’re pairing that double-digit long-term dividend growth rate with the stock’s market-beating yield of 3.4%. This dividend is protected by a payout ratio of 58.6%. 3M’s dividend growth future looks just as bright as its past.

This Dividend Aristocrat has corrected, down 15% from its recent high. And I think the valuation is compelling.

I highlighted 3M as an undervalued high-quality dividend growth stock idea less than a month ago. I analyzed the business and estimated fair value for the stock to be right about $210/share. With the stock currently below $177, we’re potentially looking at meaningful upside on top of the market-beating dividend. I like this name a lot here.

My fourth dividend growth stock pick for October 2021 is Omnicom Group (OMC).

Omnicom is an advertising, marketing, and corporate communications company.

Omnicom is one of those businesses that flies way under the radar. But it probably shouldn’t. They have some great numbers pretty much right across the board. Revenue is roughly flat over the last decade, while EPS has compounded at an annual rate of 3.07% over that period. These numbers are being artificially skewed downward, however, because of how rough 2020 was for the business. CFRA believes that Omnicom will compound its EPS at an annual rate of 11% over the next three years, which would be a victorious return to great results for the business.

While you wait for that normalization to play out, you’re being paid handsomely.

The stock yields 3.8% here. That’s edging up close to a lot of utility stocks and REITs out there, which are known for high yields. Like I said, you’re being paid handsomely to be patient. Omnicom has also increased its dividend for 12 consecutive years, with a 10-year DGR of 13.2%. So you’re not just getting paid handsomely; you’re getting paid more and more handsomely with each passing year. The payout ratio is only 45.0%, so there should be plenty more dividend growth to come from Omnicom.

The stock is up 22% this year, but I think there’s much more to come.

I performed a full analysis and valuation on Omnicom shares in August, showing why fair value for the name could be $85.40/share. Despite the healthy move up this year, the stock is still trading hands for a price well below that level. In my view, Omnicom is clearly undervalued. And you’re collecting a yield near 4% that’s growing at a very nice rate. There’s very little to complain about here.

My fifth dividend growth stock pick for October 2021 is VF Corp. (VFC).

VF is  a worldwide apparel and footwear company.

You might not know of VF directly. But you almost certainly know of its various brands that include the likes of Vans, The North Face, Timberland, and Supreme. Now, the last decade looks pretty ugly for growth. Revenue is flat. And EPS has fallen from $2.00 to $1.04. But we invest in where a business is going, not where it’s been. Can’t make money on what happened 10 years ago. With that in mind, CFRA forecasts that VF will compound its EPS at an annual rate of 31% over the next three years.

That’s music to my ears. Dividend music, that is.

This is yet another Dividend Aristocrat. VF has increased its dividend for 48 consecutive years. The five-year dividend growth rate is 9.0%. And you’re getting a 2.9% yield, too. That’s a very solid yield-and-growth combination. Plus, the payout ratio is 61.3%, based on this year’s adjusted EPS guidance. With VF due another dividend increase this month, I’m confident they’ll come through and make it 49 consecutive years of dividend increases.

This stock is down 20% YTD, which I see as totally unwarranted.

As I always say, short-term volatility is a long-term opportunity. And I see a great opportunity here with VF. In fact, I analyzed and valued it only days ago, showing why shares could be worth over $76/each. Shares are still priced below $69/each. While you wait for the market to recognize the value, you’re getting a yield near 3%. And that’s before factoring in the upcoming dividend increase. This is a great name to have on the stock shopping list for October.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.