Dividend stocks have outperformed the broader market in 2022, as the market’s volatility has sent investors to the safety of stocks with regular payouts.
The Dow Jones U.S. Select Dividend Index has eased just 0.25% so far this year, compared to a 16% drop for the S&P 500 index. As for volatility, the CBOE Volatility Index has jumped 35% during that period.
So it might be a good time to look at dividend stocks. Morningstar compiled a list of 10 stocks with safe dividends that are undervalued according to the firm’s estimates.
The stocks are pulled from the Morningstar Dividend Yield Focus Index, which tracks the top 75 high-yielding stocks that meet the firm’s screening requirements for quality and financial health.
Here’s the list:
1) Verizon Communications (VZ), the telecommunications company
2) Philip Morris International (PM), the tobacco company
3) Cisco Systems (CSCO), the technology networking company
4) Broadcom (AVGO), the semiconductor maker
5) Medtronic (MDT), the medical device manufacturer
6) 3M (MMM), the diversified product maker
7) Blackstone (BX), the private equity firm
8) Truist Financial (TFC), the bank
9) Duke Energy (DUK), the utility
10) PNC Financial Services (PNC), the bank
Morningstar’s Take on Verizon
Morningstar analyst Michael Hodel assigns the company a narrow moat (competitive advantage) and puts fair value for the stock at $59. It recently traded at $39.
“We continue to believe the market is overly focused on Verizon’s struggle to add postpaid consumer wireless customers in recent quarters,” he wrote in a commentary.
“The firm is the share leader in this category, which creates a headwind in an environment where the carriers’ networks look increasingly alike.”
But Verizon “has taken steps to ensure it remains well positioned in the traditional wireless business,” Hodel said.
Morningstar’s Take on Medtronic
Morningstar analyst Debbie Wang gives the company a wide moat and puts fair value for the stock at $122. It recently traded at $83.
“Medtronic's standing as the largest pure-play medical device maker remains a force to be reckoned with in the med-tech landscape,” she wrote in a commentary.
“Pairing Medtronic's diversified product portfolio aimed at a wide range of chronic diseases with its expansive selection of products for acute care in hospitals has bolstered Medtronic's position as a key partner for its hospital customers. Medtronic has historically focused on innovation.”
Morningstar’s Take on PNC
Morningstar analyst Eric Compton assigns the company a narrow moat and puts fair value for the stock at $183. It recently traded at $165.
“PNC has transformed itself since the financial crisis, with the integration of the troubled National City, the acquisition of RBC’s U.S. branch network in the Southeast, and the latest acquisition of BBVA USA,” he wrote in a commentary.
“PNC is now the second largest regional bank in the United States. PNC has been successful at organically expanding its customer base, both in commercial banking and in retail.”
The author of this story owns shares of Verizon and Medtronic.
