3 Dividend Stocks for January 2024

David Harrell: Hi. I’m David Harrell, editor of Morningstar DividendInvestor. 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 January 2024

1. Kenvue KVUE
2. Lockheed Martin LMT
3. Morgan Stanley MS

First up this month is Kenvue, the former consumer segment of Johnson & Johnson, which was spun off in May of last year. Soon after that, the new firm declared a $0.20 quarterly dividend, and management has said that its main capital allocation priorities are investing in the portfolio and paying dividends. Morningstar analysts note that the new company’s payout ratio is similar to that of J&J, around 70%. However, with its current yield of 3.7%, Kenvue now provides a higher yield than its former parent, which yields around 3%. Kenvue also trades at more than a 20% discount to its Morningstar fair value estimate.

Defense contractor Lockheed Martin recently raised its quarterly dividend rate by $0.15, effective with its Dec. 29 payout. This is its 21st consecutive annual dividend increase. However, that 5% hike was smaller than recent ones, as Lockheed had raised its quarterly payout by $0.20 per year for the previous five years. Still, the company has doubled its dividend rate since 2015, five-year annualized dividend growth stands at 8.9%, and the stock currently yields 2.8%. However, those figures could be higher: While Lockheed is committed to returning cash to shareholders, it has opted to return slightly more cash via share repurchases than dividends over the past five years. During the firm’s third-quarter earnings call, the CEO noted that the company had returned approximately 100% of free cash flow to shareholders through dividends and share repurchases during the quarter.

While investment bank Morgan Stanley is another firm that has generally returned more cash to shareholders via repurchases than dividends, it has grown its dividend at an annualized rate of 26.8% over the past five years, much of that coming from a doubling of the dividend in 2021. Since then, Morgan Stanley has provided two raises—10.7% in 2022 and 9.7% in 2023—and the stock currently yields 3.7%. The upward tick in the share price over the past month also means that the stock is trading at a slight premium to its fair value estimate. Future dividend growth could be more modest, however. Morningstar analysts note that proposed bank capital rules could lower repurchases and slow dividend growth over the next several years.

I’m David Harrell with Morningstar Investment Management. Thanks for watching, and we’ll see you next month.

Watch “3 Dividend Stocks for December 2023″ for more from David Harrell.