Amid a roller-coaster end to 2024 for the stock market, dividend-paying stocks continued to lag the broader market. However, this underperformance could open opportunities for long-term investors.
Dividend investing comes in various forms. Investors can look for stocks with the highest yields, those with a history of stable dividend payouts and strong finances, or those raising dividends. We screened US stocks covered by Morningstar that have increased quarterly dividends, which can signal a company’s confidence in its future finances.
Here are eight undervalued companies covered by Morningstar analysts that increased their dividends in December:
• Amgen AMGN
• Campbell’s CPB
• Mosaic MOS
• Invitation Homes INVH
• Bristol-Myers Squibb BMY
• Lamb Weston Holdings LW
• Eastman Chemical EMN
• Pfizer PFE
Screening for Undervalued Stocks That Raised Dividends
We started with the full list of US-based companies covered by Morningstar analysts, then looked for names that pay quarterly dividends and declared a dividend payment in December. We tracked changes from previous dividend payouts and filtered for companies that saw a dividend increase of 2% or more to capture the most substantial changes. Stocks with dividend yields under 2% were excluded. Lastly, we picked companies rated 4 or 5 stars by Morningstar analysts, meaning they are considered undervalued. These stocks offer investors the potential to benefit from increased dividend yields and the possibility that their investment values will grow.
Eight companies made it through the screen. A full list of stocks covered by Morningstar that raised dividends can be found at the bottom of this article.
Here’s a closer look at the undervalued stocks that raised dividends in December.
Amgen
• Morningstar Rating: 4 stars
• Fair Value Estimate: $317.00
• Uncertainty Rating: High
• Economic Moat: Wide
“We see Amgen’s current level of dividend payments (roughly $4 billion annually) and share repurchases (likely to fall below dividend payments following the Horizon deal) is appropriate, as it maximizes returns to shareholders but still leaves some free cash flow remaining to repay debt as it comes due or support M&A.”
—Karen Andersen, strategist
Campbell’s
• Morningstar Rating: 5 stars
• Fair Value Estimate: $63.00
• Uncertainty Rating: Medium
• Economic Moat: Wide
“We forecast that Campbell will increase its dividend at a mid-single-digit clip annually through fiscal 2034 (maintaining a payout of around 50%) while also repurchasing a low-single-digit percentage of shares outstanding (which we perceive as prudent when executed at a discount to our assessment of intrinsic value).”
—Erin Lash, director of consumer sector equity research
Mosaic
• Morningstar Rating: 4 stars
• Fair Value Estimate: $40.00
• Uncertainty Rating: High
• Economic Moat: None
“We see shareholder distributions as appropriate. Management’s record of returning capital to shareholders has largely depended on fertilizer prices. In 2014, the firm repurchased more than $2.5 billion worth of shares. Amid falling fertilizer prices, the company cut its dividend twice, to $0.10 per share annualized from $1.10 in 2016. However, after the company paid down debt and fertilizer prices rose in 2018, management began increasing the dividend, which now sits at an annual $0.84. Management plans to keep its dividend manageable to ensure it is maintained when fertilizer prices are cyclically low, while using additional cash for share repurchases. We are in favor of this approach but note the dividend could be cut again if fertilizer prices fall and remain lower for multiple years and free cash flow generation falls.”
—Seth Goldstein, strategist
Invitation Homes
• Morningstar Rating: 4 stars
• Fair Value Estimate: $41.00
• Uncertainty Rating: Medium
• Economic Moat: None
“We assess the company’s capital return strategy as appropriate, as Invitation Homes has increased its dividend payout ratio each year and reached 62% of adjusted funds from operations in 2022. We think Invitation Homes has reached an appropriate level for a REIT and will continue to pay at this level over the next decade.”
—Kevin Brown, senior equity analyst
Bristol-Myers Squibb
• Morningstar Rating: 4 stars
• Fair Value Estimate: $66.00
• Uncertainty Rating: Medium
• Economic Moat: Wide
“We view the company’s dividends and share repurchases as about right. Despite paying out a dividend at around 30%, we believe the allocation makes sense given the heavy patent losses upcoming that will drive the firm’s payout ratio close to the industry average of 50% over the next five years”
—Karen Andersen
Lamb Weston Holdings
• Morningstar Rating: 4 stars
• Fair Value Estimate: $82.00
• Uncertainty Rating: High
• Economic Moat: Narrow
“We think Lamb Weston’s shareholder distributions have been mixed. Since its spinout from Conagra in 2016, the company has consistently paid a dividend, with the payout ratio averaging 36% from fiscal 2017 to fiscal 2022 before falling to 15% in fiscal 2023. We forecast an average payout ratio of 43% over the next five years, above its stated target payout range of 25%-35%. This exceeds the target because of poor near-term performance rather than generous shareholder returns.”
—Kristoffer Inton, strategist
Eastman Chemical
• Morningstar Rating: 4 stars
• Fair Value Estimate: $125.00
• Fair Value Uncertainty Rating: High
• Economic Moat: Narrow
“We think distributions are appropriate. Eastman should have sufficient cash flows to increase its dividend while using excess free cash flow to repurchase shares.”
—Seth Goldstein
Pfizer
• Morningstar Rating: 5 stars
• Fair Value Estimate: $42.00
• Uncertainty Rating: Medium
• Economic Moat: Wide
“We view Pfizer’s dividends and share repurchases as about right. Pfizer has generally targeted close to a 50% payout in dividends as a percentage of normalized earnings, which seems about right for a more mature industry.”
—Karen Andersen
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
