10 Best Dividend Contenders to Buy in 2021

Published on July 23, 2021 at 12:55 pm by Fatima Farooq in Hedge Funds, News

In this article, we will be looking at the 10 best dividend contenders to buy in 2021.

According to a report by the S&P Global Dow Jones Indices, dividends have historically been important contributors to the total return of the S&P 500. Between 1926 to 2018, dividends brought in about 33% of the monthly total return of the S&P 500, for instance. Moreover, it has also been estimated that during other time periods, like the 1940s and the 1970s, dividends even went as far as contributing over half of the S&P 500’s total return. As such, stable dividend stocks included in the lists of dividend contenders and kings, like Microsoft Corporation (NASDAQ: MSFT), Visa Inc. (NYSE: V), UnitedHealth Group Incorporated (NYSE: UNH), and Johnson & Johnson (NYSE: JNJ), are known to be reliable and profitable investments.

What is a Dividend Contender?

Any company that pays out dividends and has increased its dividend yield for the past 10 years or above, but less than 25 years, is referred to as a dividend contender. Dividend contenders make up a broader list of secure dividend-paying companies, as compared to dividend kings or dividend champions.

Regardless of what category they fall under, dividend stocks are typically able to outperform the broader market. Global X Management Company LLC has estimated, for instance, that high dividend stocks, in particular, have been able to outperform the S&P 500 by about 3% on an annualized basis between 1960 and 2017. Additionally, these same stocks have generated an average annual yield of 6.4% during the same time period, while they have also been able to outperform the market by 0.80% during times of financial instability and rising interest rates. And while past performance can of course not ever be taken to be a guarantee that the same stocks will perform just as well in the present and future, their past performance can be taken to testify to the claim that dividend stocks should be on any investor’s list of investment options for 2021.

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Investing is becoming difficult by the day, even for the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let’s now look at the 10 best dividend contenders to buy in 2021. The stocks selected for our list below were chosen on the basis of their fundamentals and growth potential based on core business strengths. We also took into account analyst’s ratings and hedge fund sentiment to pick out the stocks most popular among the hedge funds tracked by Insider Monkey. They have been ranked on the basis of the number of years of consistent dividend increases, from lowest to highest.

Best Dividend Contenders to Buy in 2021

10. Intuit Inc. (NASDAQ: INTU)

Number of Hedge Fund Holders: 68
Number of Years of Consecutive Dividend Increases: 10
Dividend Yield: 0.5%

Intuit Inc. (NASDAQ: INTU) is a provider of financial management and compliance products and services in the US and internationally. The company ranks 10th on our list of the best dividend contenders to buy in 2021.

This May, Morgan Stanley’s Keith Weiss raised his price target on Intuit Inc. (NASDAQ: INTU) shares to $511 from $470, while holding on to his Overweight rating on the stock. Weiss has stated that Intuit Inc. (NASDAQ: INTU) may well be able to see a durable EPS growth of about 20% as well.

In the fiscal third quarter of 2021, Intuit Inc. (NASDAQ: INTU) had an EPS of $6.07, significantly higher than its EPS in the previous quarter of $0.68. The company’s revenue was $4.17 billion, up 39.01% year over year and also far surpassing the previous quarter’s $1.58 billion revenue. Intuit Inc. (NASDAQ: INTU) has gained about 37.24% in the past 6 months and 38.40% year to date as well.

By the end of the first quarter of 2021, 68 hedge funds out of the 866 tracked by Insider Monkey held stakes in Intuit Inc. (NASDAQ: INTU) worth roughly $4.70 billion. This is compared to 68 hedge funds in the previous quarter with stakes worth approximately $4.69 billion.

Like Microsoft Corporation (NASDAQ: MSFT), Visa Inc. (NYSE: V), UnitedHealth Group Incorporated (NYSE: UNH), and Johnson & Johnson (NYSE: JNJ), Intuit Inc. (NASDAQ: INTU) is a good dividend stock to invest in.

9. JPMorgan Chase & Co. (NYSE: JPM)

Number of Hedge Fund Holders: 111
Number of Years of Consecutive Dividend Increases: 10
Dividend Yield: 2.6%

JPMorgan Chase & Co. (NYSE: JPM) is a provider of consumer and community banking, corporate and investment banking, commercial banking, and asset and wealth management services across the globe. Additionally, it also offers ATM, online and mobile, and telephone banking services. The company ranks 9th on our list of the best dividend contenders to buy in 2021.

This July, Credit Suisse raised the price target on JPMorgan Chase & Co. (NYSE: JPM) shares from $170 to $177, with analyst Susan Roth Katzke retaining the firm’s Outperform rating on the stock.

In the second quarter of 2021, JPMorgan Chase & Co. (NYSE: JPM) had an EPS of $3.78, beating estimates by $0.62. The company’s revenue was $30.48 billion, also beating estimates by $762.45 million. JPMorgan Chase & Co. (NYSE: JPM) has gained 14.25% in the past 6 months and 21.44% year to date.

By the end of the first quarter of 2021, 111 hedge funds out of the 866 tracked by Insider Monkey held stakes in JPMorgan Chase & Co. (NYSE: JPM) worth roughly $5.25 billion. This is compared to 112 hedge funds in the previous quarter with stakes worth approximately $6.96 billion.

Like Microsoft Corporation (NASDAQ: MSFT), Visa Inc. (NYSE: V), UnitedHealth Group Incorporated (NYSE: UNH), and Johnson & Johnson (NYSE: JNJ), JPMorgan Chase & Co. (NYSE: JPM) is a good dividend stock to invest in.

8. Mastercard Incorporated (NYSE: MA)

Number of Hedge Fund Holders: 151
Number of Years of Consecutive Dividend Increases: 10
Dividend Yield: 0.5%

Mastercard Incorporated (NYSE: MA) provides transaction processing and payment-related products and services to consumers in the US and internationally. The company ranks 8th on our list of the best dividend contenders to buy in 2021.

Baird’s David Koning has raised the firm’s price target on Mastercard Incorporated (NYSE: MA) shares as of this July, from $454 to $482. The firm and analyst have an Outperform rating on the stock as well, with Koning commenting that he expects Mastercard Incorporated (NYSE: MA) to beat Q2 earnings and revenue estimates.

In the first quarter of 2021, Mastercard Incorporated (NYSE: MA) had an EPS of $1.74, beating estimates by $0.18. The company’s revenue was $4.16 billion, up 3.64% year over year and beating estimates by $163.07 million. Mastercard Incorporated (NYSE: MA) has also gained 15.52% in the past 6 months and 8.13% year to date.

By the end of the first quarter of 2021, 151 hedge funds out of the 866 tracked by Insider Monkey held stakes in Mastercard Incorporated (NYSE: MA) worth roughly $17.09 billion. This is compared to 154 hedge funds in the previous quarter with stakes worth approximately $17.9 billion.

Like Microsoft Corporation (NASDAQ: MSFT), Visa Inc. (NYSE: V), UnitedHealth Group Incorporated (NYSE: UNH), and Johnson & Johnson (NYSE: JNJ), Mastercard Incorporated (NYSE: MA) is a good dividend stock to invest in.

7. Pfizer Inc. (NYSE: PFE)

Number of Hedge Fund Holders: 65
Number of Years of Consecutive Dividend Increases: 11
Dividend Yield: 3.9%

Pfizer Inc. (NYSE: PFE) is a biopharmaceuticals company operating globally under a range of brands including Vyndaqel/Vyndamax, BeneFIX, and Genotropin. The company’s PfizerBiontech vaccine against COVID-19 is also amongst the first and most effective vaccines out there, and it ranks 7th on our list of the best dividend contenders to buy in 2021.

This June, Argus analyst David Toung reiterated a Buy rating on Pfizer Inc. (NYSE: PFE) shares alongside a $55 price target. Toung has commented that the market is not fully realizing the potential sustainability of Pfizer Inc.’s (NYSE: PFE) COVID-19 vaccine franchise and its contribution to the company’s revenue.

In the first quarter of 2021, Pfizer Inc. (NYSE: PFE) had an EPS of $0.93, beating estimates by $0.15. The company’s revenue was $14.58 billion, up 21.23% year over year and also beating estimates by $961.32 million. Pfizer Inc. (NYSE: PFE) has gained about 12.23% in the past 6 months and 11.44% year to date as well.

By the end of the first quarter of 2021, 65 hedge funds out of the 866 tracked by Insider Monkey held stakes in Pfizer Inc. (NYSE: PFE) worth roughly $2.01 billion. This is compared to 63 hedge funds in the previous quarter with stakes worth approximately $1.84 billion.

Like Microsoft Corporation (NASDAQ: MSFT), Visa Inc. (NYSE: V), UnitedHealth Group Incorporated (NYSE: UNH), and Johnson & Johnson (NYSE: JNJ), Pfizer Inc. (NYSE: PFE) is a good dividend stock to invest in.

ClearBridge Investments, an investment management firm, mentioned Pfizer Inc. (NYSE: PFE) in its first-quarter 2021 investor letter. Here’s what they said:

“Our underweights in health care and staples contributed to relative performance during the period. As we continue to focus the portfolio on high-conviction ideas, we sold Pfizer in late 2020, in the health care sector.”

6. The Home Depot, Inc. (NYSE: HD)

Number of Hedge Fund Holders: 68
Number of Years of Consecutive Dividend Increases: 12
Dividend Yield: 2%

The Home Depot, Inc. (NYSE: HD) is an American household products and improvement retailer that owns and operates the Home Depot stores providing a range of home maintenance and decoration items. It ranks 6th on our list of the best dividend contenders to buy in 2021.

Credit Suisse raised its price target on The Home Depot, Inc. (NYSE: HD) shares as of this May, from $319 to $330. Analyst Lavesh Hemnani retained the firm’s Outperform rating on the stock as well, citing The Home Depot, Inc.’s (NYSE: HD) strong Q1 report for the increased price target and positive rating.

In the fiscal first quarter of 2022, The Home Depot, Inc. (NYSE: HD) had an EPS of $3.86, beating estimates by $0.81. The company’s revenue was $37.50 billion, up 32.7% year over year and also beating estimates by $2.87 billion. The Home Depot, Inc. (NYSE: HD) has gained about 14.92% in the past 6 months and 23.66% year to date as well.

By the end of the first quarter of 2021, 68 hedge funds out of the 866 tracked by Insider Monkey held stakes in The Home Depot, Inc. (NYSE: HD) worth roughly $4.35 billion. This is compared to 79 hedge funds in the previous quarter with stakes worth approximately $4.92 billion.

Like Microsoft Corporation (NASDAQ: MSFT), Visa Inc. (NYSE: V), UnitedHealth Group Incorporated (NYSE: UNH), and Johnson & Johnson (NYSE: JNJ), The Home Depot, Inc. (NYSE: HD) is a good dividend stock to invest in.

5. CSX Corporation (NASDAQ: CSX)

Number of Hedge Fund Holders: 53
Number of Years of Consecutive Dividend Increases: 17
Dividend Yield: 1.1%

CSX Corporation (NASDAQ: CSX) is a railroads company providing rail-based freight transportation services and transportation of intermodal containers and trailers, among other related services. It ranks 5th on our list of the best dividend contenders to buy in 2021.

This July, TD Securities upgraded CSX Corporation (NASDAQ: CSX) from Hold to Buy, while RBC Capital also raised its price target on the company’s shares from $36 to $37.

In the second quarter of 2021, CSX Corporation (NASDAQ: CSX) had an EPS of $0.52, beating estimates by $0.15. The company’s revenue was $2.99 billion, up 32.59% year over year and also beating estimates by $46.04 million. CSX Corporation (NASDAQ: CSX) has gained about 8.08% in the past 6 months and 7.64% year to date as well.

By the end of the first quarter of 2021, 53 hedge funds out of the 866 tracked by Insider Monkey held stakes in CSX Corporation (NASDAQ: CSX) worth roughly $3.69 billion. This is compared to 58 hedge funds in the previous quarter with stakes worth approximately $3.31 billion.

4. Verizon Communications Inc. (NYSE: VZ)

Number of Hedge Fund Holders: 69
Number of Years of Consecutive Dividend Increases: 17
Dividend Yield: 4.4%

Verizon Communications Inc. (NYSE: VZ) is an integrated telecommunication services company that offers postpaid and prepaid service plans, internet access, wireless equipment, and other communications, technology, information, and entertainment products and services across the world. The company ranks 4th on our list of the best dividend contenders to buy in 2021.

RBC Capital has a Sector Perform rating on Verizon Communications Inc. (NYSE: VZ) shares as of this July, while Tigress Financial has also reiterated its Buy rating on the stock alongside a $67 12-month target price.

In the second quarter of 2021, Verizon Communications Inc. (NYSE: VZ) had an EPS of $1.37, beating estimates by $0.07. The company’s revenue was $33.76 billion, up 10.89% year over year and also beating estimates by $1.03 billion. Verizon Communications Inc. (NYSE: VZ) has gained about 0.36% in the past year.

By the end of the first quarter of 2021, 69 hedge funds out of the 866 tracked by Insider Monkey held stakes in Verizon Communications Inc. (NYSE: VZ) worth roughly $11.38 billion. This is compared to 67 hedge funds in the previous quarter with stakes worth approximately $10.5 billion.

Miller/Howard Investments, an investment management firm, mentioned Verizon Communications Inc. (NYSE: VZ) in its first-quarter 2021 investor letter. Here’s what they said:

“We sold Verizon (VZ) based on concerns over how much they might spend in ongoing spectrum auctions. Management may legitimately view spending billions of dollars to expand their spectrum holdings as necessary, but we believe the payoff will be slow and will make it challenging to grow the dividend at a good pace.”

3. Costco Wholesale Corporation (NASDAQ: COST)

Number of Hedge Fund Holders: 56
Number of Years of Consecutive Dividend Increases: 17
Dividend Yield: 0.8%

Costco Wholesale Corporation (NASDAQ: COST) is a consumer staples company that manages warehouses in the US and internationally, alongside operating pharmacies, food courts, gas stations, and other consumer-oriented spaces. The company ranks 3rd on our list of the best dividend contenders to buy in 2021.

Bill Kirk, an analyst at MKM Partners, raised his price target on Costco Wholesale Corporation (NASDAQ: COST) shares this July to $385, keeping a Neutral rating on the stock. The analyst has cited the company’s strong June sales report while raising the price target.

In the fiscal third quarter of 2021, Costco Wholesale Corporation (NASDAQ: COST) had an EPS of $2.75, beating estimates by $0.47. The company’s revenue was $45.28 billion, up 21.50% year over year and also beating estimates by $1.46 billion. Costco Wholesale Corporation (NASDAQ: COST) has gained about 14.55% in the past 6 months and 9.17% year to date as well.

By the end of the first quarter of 2021, 56 hedge funds out of the 866 tracked by Insider Monkey held stakes in Costco Wholesale Corporation (NASDAQ: COST) worth roughly $4.01 billion. This is compared to 61 hedge funds in the previous quarter with stakes worth approximately $3.61 billion.

ClearBridge Investments, an investment management firm, mentioned Costco Wholesale Corporation (NASDAQ: COST) in its first-quarter 2021 investor letter. Here’s what they said:

“To take a more discretionary stance in retailing and make room for our additional purchases where we see better opportunities, we closed our position in Costco Wholesale. Costco was a big winner during the most restrictive periods of the COVID-19 lockdowns with its focus on staples, larger basket size, necessities and bulk items, and it remains an exceptional retailer in its category, with a sticky subscription base and non-U.S. growth ahead. However, the company is facing very tough comparisons as well as margin pressure in its core business and we believe its valuation has become stretched.”

2. Microchip Technology Incorporated (NASDAQ: MCHP)

Number of Hedge Fund Holders: 42
Number of Years of Consecutive Dividend Increases: 18
Dividend Yield: 1.1%

Microchip Technology Incorporated (NASDAQ: MCHP) is a leading tech company that manufactures semiconductor products for a range of embedded control applications in the US and internationally. The company ranks 2nd on our list of the best dividend contenders to buy in 2021.

KeyBanc’s John Vinh has raised the price target on Microchip Technology Incorporated (NASDAQ: MCHP) shares from $180 to $185 this July while retaining the firm’s Overweight rating on the stock.

In the fiscal fourth quarter of 2021, Microchip Technology Incorporated (NASDAQ: MCHP) had an EPS of $1.85, beating estimates by $0.11. The company’s revenue was $1.47 billion, up 10.61% year over year and also beating estimates by $10.85 million. Microchip Technology Incorporated (NASDAQ: MCHP) has gained about 34.62% in the past year.

By the end of the first quarter of 2021, 42 hedge funds out of the 866 tracked by Insider Monkey held stakes in Microchip Technology Incorporated (NASDAQ: MCHP) worth roughly $962 million. This is compared to 45 hedge funds in the previous quarter with stakes worth approximately $961 million.

1. International Flavors & Fragrances Inc. (NYSE: IFF)

Number of Hedge Fund Holders: 55
Number of Years of Consecutive Dividend Increases: 19
Dividend Yield: 2.1%

International Flavors & Fragrances Inc. (NYSE: IFF) is a manufacturer and seller of cosmetic active and natural health ingredients to be used in consumer products in the US and internationally. The company ranks 1st on our list of the best dividend contenders to buy in 2021.

As of this July, Redburn has initiated coverage of International Flavors & Fragrances Inc. (NYSE: IFF) shares with a Buy rating, led by analyst Ranulf Orr.

In the first quarter of 2021, International Flavors & Fragrances Inc. (NYSE: IFF) had an EPS of $1.60, beating estimates by $0.05. The company’s revenue was $2.46 billion, up 82.96% year over year and also beating estimates by $9.68 million. International Flavors & Fragrances Inc. (NYSE: IFF) has gained about 25.19% in the past 6 months and 37.97% year to date as well.

By the end of the first quarter of 2021, 55 hedge funds out of the 866 tracked by Insider Monkey held stakes in International Flavors & Fragrances Inc. (NYSE: IFF) worth roughly $3.602 billion. This is compared to 33 hedge funds in the previous quarter with stakes worth approximately $488 million.

Rhizome Partners, an investment management firm, mentioned International Flavors & Fragrances Inc. (NYSE: IFF) in its first-quarter 2021 investor letter. Here’s what they said:

“We are still getting used to the higher multiples that investors will pay for larger market cap and pure play companies such as IFF. We do understand the market’s rationale. IFF’s products account for a small percentage of the customers’ cost while playing critical roles in the products’ performance. With some operating leverage, the company can probably grow FCF at 4-6% a year. This brings the total return close to the long-term return of the S&P 500 index of 10%. Through trial and error, we have come to appreciate how scale, higher market share, route densities, switching costs, and collaborative relationships amongst major industry players can contribute to sustained high returns on invested capital.”

You can also take a peek at 10 Best Dividend Champions to Buy Now and 10 Best Dividend Stocks to Buy According to Mason Hawkins’ Southeastern Asset Management.

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10 Best Dividend Contenders to Buy in 2021

Published on July 23, 2021 at 12:55 pm by Fatima Farooq in Hedge Funds, News

What is a Dividend Contender?