3 Dividend Stocks for February 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 February 2024

1. Amcor AMCR
2. United Parcel Services UPS
3. Starbucks SBUX

Amcor, which provides packaging solutions to the food, beverage, pharmaceutical, and other industries, initiated its dividend in 2019. Subsequent dividend growth, however, has been minimal: The initial quarterly dividend rate of 12.0 cents soon dropped to 11.5 cents before slowly rising to 12.5 cents for the final payout of 2023. But the stock, trading at a 15% discount to its Morningstar fair value estimate, currently yields 5.2%, making it one of the higher-yielding consumer cyclical names. And Morningstar equity analysts forecast 5.3% annualized dividend growth over the next five years.

United Parcel Services’ five-year annualized dividend-growth rate stands at 12.9%, driven in large part by a 49% dividend hike in 2022. That was followed by a 6.6% increase for 2023. However, Morningstar equity analysts forecast modest dividend growth—2.7% annualized—through 2027, and the just-announced dividend increase for 2024 was a penny per share, a 0.6% increase. The share price has declined over the past year and dropped another 10% following disappointing fourth-quarter earnings, which has pushed the stock’s forward yield up to around 4.5%. While Morningstar equity analysts reduced their fair value estimate following those results, the stock is trading at around a 10% discount to fair value.

With its forward yield of around 2.4%, Starbucks isn’t a high-yielding stock. However, the company has raised its dividend for 13 consecutive years and continues to increase it at a respectable rate, with a 7.5% boost in 2023 following an 8.2% raise in 2022. Starbucks’ five-year annualized dividend-growth rate is 11.0%, though this figure is likely to decline, and the company targets a payout ratio of around 50%.

Despite the stock’s relatively modest yield, the CFO of Starbucks noted in the company’s Nov. 2 earnings call that it provides a higher yield than most “high-growth” companies. For this reason, I believe Starbucks can provide some diversification from the types of companies that generally dominate most dividend-focused portfolios. Starbucks is currently trading at a 9% discount to its Morningstar 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 January 2024″ for more from David Harrell.