When you’re looking for safety in the stock market, dividend stocks are generally a good place to go.
They can offer regular, often rising, income payments, and often provide stable to gently rising share prices. Stocks that raise their dividends are especially attractive, because they signal companies that are confident about their finances.
Morningstar put together a list of six stocks that are lifting their dividends and are undervalued compared to the firm’s fair value estimates.
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The Criteria
So how did Morningstar come up with the list? “We started with the 654 U.S.-based companies covered by Morningstar that pay a quarterly dividend,” it said. “We filtered for companies that saw a dividend increase of 5% or more” in the second quarter.”
Then “stocks with dividend yields under 2% were excluded from the group,” Morningstar said. “After that we picked companies considered undervalued by Morningstar analysts…. Only six companies made the cut.”
Here’s the roster, with the most undervalued stock, as of June 5, based on Morningstar fair value estimates, listed first:
1. Williams-Sonoma (WSM), the home goods retailer. Morningstar moat (durable competitive advantage) rating: narrow. Morningstar fair value estimate: $209. Monday afternoon quote: $125.50. Forward dividend yield: 2.87%.
“Williams-Sonoma has carved out a solid position in the $750 billion global home category and the $80 billion U.S. business-to-business industry,” Morningstar analyst Jaime Katz wrote in a commentary.
“It has historically launched most of its brands organically in underserved segments. And its brand intangible asset has been the key factor in its top- and bottom-line growth.”
Media, Staffing, Financial Companies
2. Comcast (CMCSA), the media/entertainment/telecom colossus. Morningstar moat: wide. Morningstar fair value estimate $60. Monday afternoon quote: $40. Forward dividend yield: 2.88%.
“Comcast’s core cable business enjoys significant competitive advantages but will likely see growth slow as competition … heats up,” wrote Morningstar analyst Michael Hodel.
“NBCUniversal isn’t as well positioned but holds unique assets … that should help ease the transition away from the traditional television business. Overall, we expect Comcast will deliver modest growth with strong cash flow for the foreseeable future.”
3. ManpowerGroup (MAN), a staffing firm. Morningstar moat: none. Morningstar fair value estimate: $102. Monday afternoon quote: $76.50. Forward dividend yield: 3.84%.
“Manpower will remain one of the largest global staffing firms in a highly fragmented industry. The company is one of only three diversified global recruitment providers,” wrote Morningstar analyst Joshua Aguilar.
“We expect Manpower to continue shifting toward higher-value solutions and services, such as its Talent Solutions and Experis brands.”
4. Discover Financial Services (DFS), the credit card company. Morningstar moat: narrow. Morningstar fair value estimate: $146. Monday afternoon quote: $115. Forward dividend yield: 2.45%.
5. Qualcomm (QCOM), the smartphone semiconductor developer. Morningstar moat: narrow. Morningstar fair value estimate: $140. Monday afternoon quote: $122. Forward dividend yield: 2.69%.
6. Microchip Technology (MCHP), a chip maker. Morningstar moat: wide: Morningstar fair value estimate: $90. Monday afternoon quote: $83. Forward dividend yield: 1.91% (as of June 12. Morningstar made its ranking June 5).
