Hi, I'm David Harrell with Morningstar Investment Management. In this new monthly video series, we take a look at the dividend prospects of three stocks that are popular with income investors.
The first name on our list this month is Enterprise Products Partners, which is a master limited partnership, or MLP. Enterprise has increased its total annual payout for 23 consecutive years, and Morningstar analysts believe that Enterprise's ability to support its distribution through various market environments remains solid. Modest annual growth in the distribution rate seems likely to continue, and the partnership just announced a 2.2% increase for its next distribution.
3 Dividend Stocks for August 2022
Two of the stocks are considered undervalued. Data as of July 26, 2022.
- Enterprise Products Partners EPD
- Hanesbrands HBI
- Advance Auto Parts AAP
Next up is Hanesbrands. Hanesbrands' dividend rate hasn't changed since 2017. While Morningstar analysts believe the company currently has the financial strength to boost its dividend, it doesn't necessarily have the incentive to do so. In fact, management has described the stock's yield as "meaningful," as it exceeds the yield of many of its peers. So, instead of raising its dividend, the company has been buying back shares in 2022, having decided that buybacks are a better use of cash today, given the stock's current valuation. While Morningstar analysts expect dividend increases to resume in 2023, any raise will probably have to wait until appreciation of the stock price pushes the yield lower.
And lastly, there's Advance Auto Parts. Advance Auto Parts boasts annualized dividend growth of nearly 70% over the past five years. But the rate of dividend increases will probably slow down, as the current annual payout of $6.00 per share is near the high end of management's targeted 35%-45% payout ratio. But if earnings growth can approach consensus estimates for 2023 and 2024, there should be ample room for future dividend increases.
I'm David Harrell with Morningstar Investment Management. Thanks for watching and see you next month. And be sure to tune in to my other monthly program, Dividend Stock Deep Dive.
Watch Dividend Stock Deep Dive: Dividend-Growth Stocks. David Harrell and Morningstar Indexes strategist Dan Lefkovitz discuss why dividend-growth stocks may be good choices during times of inflation.
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