3 Dividend Stocks for April 2023

David Harrell: Hi. I’m David Harrell with Morningstar Investment Management. In this monthly video series, we take a look at the dividend prospects of three stocks that are popular with income investors.

3 Dividend Stocks for April 2023

These 4-star stocks are popular with income investors.

1. Altria MO
2. TC Energy TRP
3. Vodafone VOD

First up this month is Altria, the leading tobacco manufacturer in the United States. Although Morningstar analysts expect a volume decrease of 5% a year for cigarettes in the U.S., they believe the company can increase the price of its products at a greater rate, allowing it to continue to increase revenue, earnings, and the dividend.

Altria’s stock currently yields more than 8%. The payout ratio was 85% last year and Morningstar analysts expect a similar ratio for 2023. While they note that this level of payout leaves little room for maneuvering in the event of another liquidity crisis or black swan regulatory or litigation event, they believe that the firm is committed to its dividend and that a cut would only occur in the most extreme of circumstances. In such a situation, they note that Altria’s 10% interest in Anheuser-Busch InBev BUD could be monetized. Altria’s management recently released a statement about the dividend, saying that the firm would target annual dividend growth in the mid-single-digits range.

TC Energy operates natural gas, oil, and power generation assets in Canada and the United States. Like its peer Enbridge ENB, TC Energy pays a fixed quarterly dividend in base currency, and the amount received by U.S. shareholders varies each quarter based on currency fluctuations. The dividend in Canadian currency currently translates into an annual payout of around $2.75 and a 7% yield for U.S. shareholders. TC Energy has increased its dividend—in base currency—at an annualized rate of 7.6% over the past five years, but management’s current stated goal is 3% to 5% a year. Morningstar analysts expect 4% dividend growth for 2023 and they believe that 3% to 4% growth going forward is easily supportable.

Finally, Vodafone is a telecommunications conglomerate with a presence in more than 20 countries around the world. Its most important markets are Germany, Spain, Italy, and the U.K. Like many European companies, Vodafone pays a semiannual dividend that will vary for U.S. investors based on exchange rates, and the recent strength of the dollar caused the U.S. payout to decline slightly in 2022. While Vodafone’s yield looks quite attractive at more than 8%, the company cut its dividend in 2019, and the current dividend rate appears somewhat less than rock-solid. In late 2022, Morningstar analysts pointed out that the gap between free cash flow available to equity and dividend payments is narrow. If fundamentals keep deteriorating, a dividend cut could be feasible in the next couple of years.

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

Watch “3 Dividend Stocks for March 2023″ for more from this series.