When a company increases its dividend, that obviously means a higher payout for investors.
It also often indicates financial strength for the company, as presumably it is earning more cash to pay for the dividend increase.
With that in mind, Morningstar has put together a list of eight stocks that recently increased their dividends and are undervalued according to Morningstar fair value estimates
“Since the stock market’s gains this year have been powered by just a handful of big-name technology stocks, many dividend-paying stocks have lagged,” wrote Tom Lauricella, chief markets editor for Morningstar. .
“But that poor performance is opening opportunities for long-term investors to find undervalued dividend payers, including those that have been raising their payouts.”
For this list, Morningstar chose companies that have raised their dividend recently, as that can be a sign of a company’s confidence in its future finances, Lauricella said.
Morningstar screened for stocks that increased their dividend at least 5% between July 1 and Oct. 31. It dumped any stock with a dividend yield under 2%. Among the remainder, Morningstar selected stocks that its analysts see as substantially undervalued.
That created the elite eight. Here it is, starting with the company that lifted its dividend the most.
Radio, Food, Motor Homes
1. Sirius XM Holdings SIRI
Morningstar moat (durable competitive advantage) rating: narrow. Morningstar fair value estimate: $7. Friday’s closing price: $4.63. Recent dividend increase: 9.9%. Forward dividend yield: 2.3%.
2. McDonald’s MCD
Morningstar moat rating: wide. Morningstar fair value estimate: $290. Friday’s closing price: $267.79. Recent dividend increase: 9.9%. Forward dividend yield: 2.49%.
3. Microchip Technology MCHP, a supplier of semiconductors that act as the brains in electronic devices
Morningstar moat rating: wide. Morningstar fair value estimate: $90. Friday’s closing price: $77.56. Recent dividend increase: 7.1%. Forward dividend yield: 1.91% (the list came out on Nov. 9, and Microchip stock soared that day, pushing its yield below 2%).
4. Thor Industries THO, a motor home maker
Morningstar moat: none. Morningstar fair value estimate: $139. Friday’s closing price: $91.32. Recent dividend increase: 6.7%. Forward dividend yield: 2.1%.
Utilities and More Utilities
5. American Electric Power AEP, a utility
Morningstar moat rating: narrow. Morningstar fair value estimate: $97. Friday’s closing price: $77.70. Recent dividend increase: 6%. Forward dividend yield: 4.53%.
6. Entergy ETR, a utility
Morningstar moat rating: narrow. Morningstar fair value estimate: $120. Friday’s closing price: $96.61. Recent dividend increase: 5.6%. Forward dividend yield: 4.68%.
7. CenterPoint Energy CNP, a utility
Morningstar moat rating: narrow. Morningstar fair value estimate: $30. Friday’s closing price: $27.12. Recent dividend increase: 5.3%. Forward dividend yield: 2.95%.
8. FirstEnergy FE, a utility
Morningstar moat rating: narrow. Morningstar fair value estimate: $40. Friday’s closing price: $35.30. Recent dividend increase 5.1%. Forward dividend yield: 4.65%
The author owns shares of McDonald’s and FirstEnergy.
