3 Dividend Stocks for April 2024

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 Dividend Stocks for April 2024

1. Altria MO
2. J.P. Morgan Chase JPM
3. FMC FMC

First up this month is Altria, the leading tobacco manufacturer in the United States. Altria says it has a progressive dividend goal, targeting mid-single-digit growth annually through 2028. This aligns with recent dividend growth—which was 5.1% annualized over the past five years. The stock currently yields more than 9% and trades at a 12% discount to its Morningstar fair value estimate. Morningstar analysts observe that the high payout ratio “leaves little room for maneuvering in the event of another liquidity crisis or black swan regulatory or litigation event.” But they also believe that a dividend “cut would only occur in the most extreme of circumstances.” Altria’s 10% interest in Anheuser-Busch InBev has long been considered a resource that could be used to support the dividend. Yet the firm recently announced that it is selling a portion of this stake and will use the proceeds for share repurchases. As Altria noted, a reduced share count will reduce the dollars needed to support the dividend. This could make the current dividend more durable and potentially provide more capacity for future dividend increases. However, while Morningstar analysts assume a mid-single-digit volume decline in the cigarette industry in the US each year, there is the risk that the decline rate could accelerate, which could impact earnings and the dividend.

J.P. Morgan Chase had held its dividend flat for eight quarters in a row but raised its dividend rate by 5% for its final payout of 2023, and it recently declared a 9.5% increase for the dividend that will be paid at the end of this month. However, while the stock was yielding more than 3% a year ago, strong share price performance since then has pushed the yield down to 2.3%, which is the lowest yield among the “Big Four” US banks, and the stock currently trades at more than a 25% premium to its fair value estimate. Like most banks, J.P. Morgan has often returned more cash to shareholders via buybacks than dividends, though dividends have had the edge for the past five years.

FMC is a crop chemical producer and one of the five largest patented crop protection companies. FMC’s dividend growth—21% annualized over the past five years—has been impressive. However, future dividend growth is likely to be much more modest. During the company’s Feb. 6 earnings call, its CEO said that it expects “to pay $290 million in dividends at the current rate in 2024. The remainder of free cash flow, as well as any proceeds from any divestments or disposals, will be used to pay down debt.” Morningstar analysts concur that the dividend will remain flat through 2024, but they expect growth to restart in 2025, with the payout rising to $2.69 per share by 2027. The stock currently yields 3.8% and trades for around a 40% discount to its fair value estimate.

I’m David Harrell from Morningstar DividendInvestor. Thanks for watching, and we’ll see you next month.

Watch 3 Dividend Stocks for March 2024 for more from David Harrell.