David Harrell: Hi, I’m David Harrell, editor of the Morningstar DividendInvestor newsletter. In this monthly series, we take a look at the dividend prospects of three stocks that are popular with income investors.
3 US Dividend Stocks for February 2025
- A.O. Smith AOS
- Coca-Cola KO
- Starbucks SBUX
A.O. Smith AOS is a fairly recent addition to the coverage universe of Morningstar equity analysts, but the water heater manufacturer can boast of a long streak of annual dividend increases, enough to make it a dividend aristocrat. While the company has increased its dividend at an annualized rate of 9.9% over the past five years, its yield is a relatively modest 2.0%. In their assessment of A.O. Smith’s capital allocation, Morningstar equity analysts noted its 30-plus year streak of increases and said they have “no reason to believe it will deviate from that strategy, especially considering its consistent free cash flow generation and conservative balance sheet.” They expect the current annual dividend of $1.36 per share to increase to $1.66 by 2028. The stock currently trades at a discount of a little more than 10% to its $82 Morningstar fair value estimate.
Our second stock is also a dividend aristocrat—2024’s dividend increase made it 62 years in a row of raises for Coca-Cola KO. The stock currently yields 3.1%, with 3.4% annualized dividend growth over the past five years, and it trades in line with its Morningstar fair value estimate of $64 per share. Based on the cadence of announcements in recent years, Coke is likely to declare its next dividend increase in mid-March for the dividend that will be paid in early April. Morningstar analysts expect the dividend rate to grow in line with earnings over the next 10 years, with the dividend/payout ratio “stabilizing around 70%,” which they view as prudent.
Starbucks SBUX raised its quarterly dividend rate by 7% for its final payout of 2024, which was the company’s 14th consecutive annual raise, and the rate of increase has been strong, at 13.8% annualized over the past five years. While a price decline late in 2024 had pushed the stock’s yield up to 2.8%, above the 2.4% it has averaged over the past five years, subsequent price appreciation has brought the yield back to within its historical range, as it currently yields 2.2%. The rising price has also pushed the stock into 2-star territory, as its now trading at more than a 15% premium to its $86 Morningstar fair value estimate. Despite Starbucks’ current challenges—its sales have declined for each of the past four quarters—Morningstar analysts project ongoing annual dividend growth, with the current annual rate of $2.44 per share rising to $3.18 by 2029.
I’m David Harrell from Morningstar DividendInvestor. Thanks for watching and we’ll see you next month.
Watch 3 Dividend Stocks for January 2025 for more from this series.
The author or authors do own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
