Skip to Content

7 Undervalued Stocks With Growing Dividends

These heavily weighted names in the Morningstar U.S. Dividend Growth Index are all at least 10% undervalued.

While they may not be the highest-yielding stocks around, dividend-growth stocks--those that have a history of increasing their payouts over time--have plenty going for them.

For starters, the management teams at these companies are focused on delivering a growing cash stream to their shareholders--and income is a key component of total return. That's a shareholder-friendly mindset.

Moreover, companies that consistently ratchet up their dividends are usually profitable and financially healthy--two especially valuable qualities during a market downturn.

Last, dividend-growth stocks provide some inflation protection, which is a plus for retirees in particular. "Income-focused investors receive a little 'raise' when a company increases its dividend," reminds Morningstar director of personal finance Christine Benz.

Given their multipurpose role, dividend-growth stocks are suitable for almost any type of investor. Furthermore, Morningstar's chief U.S. markets strategist Dave Sekera expects dividends to grow in line with earnings this year.

Watch: Dividend Trends for 2022

To uncover a few dividend-growth stocks to investigate further, we're turning to the top constituents in the Morningstar U.S. Dividend Growth Index.

The index focuses on companies with a history of dividend growth and an ability to maintain it. The index includes U.S.-based securities that pay qualified dividends and have increased their dividend payments over the past five years. To gauge the durability of dividend growth into the future, eligible constituents must display positive consensus earnings forecasts from the analyst community and must also pay out no more than 75% of their earnings in the form of dividends. Constituents are weighted in proportion to the total pool of dividends available to investors.

Given the index's construction rules, its largest constituents are relatively stable mega-cap companies. Below are the seven most heavily weighted in the index that are at least 10% undervalued as of this writing. Premium Members can read what our analysts have to say about each of these stocks.

Disclosure: Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Neither Morningstar, Inc. nor its investment management division markets, sells, or makes any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.

More on this Topic