3 Dividend Stocks for August 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 August 2023

1. Procter & Gamble PG
2. Edison International EIX
3. CME Group CME

Procter & Gamble is one of the world’s largest consumer product manufacturers. It’s also a longtime dividend payer with a truly impressive record of annual dividend raises, having increased its dividend for 67 consecutive years. Morningstar analysts note the company’s commitment to returning cash to shareholders, and I think it seems likely that the streak of annual dividend increases will continue. However, P&G is not a high-yielding stock, as its yield has remained close to 2.5% over the past five years. That figure could be higher, but the firm has returned slightly more cash to shareholders via buybacks than dividends over the past five years. The stock is currently in 2-star territory, trading for a near-20% premium to its Morningstar fair value estimate.

Edison International is a fully regulated utility in California that currently provides a 4.3% yield, which is above average for its sector. A 5.3% raise at the end of 2022 slightly exceeds the five-year annualized dividend-growth rate of 4.9%. That raise also increased the utility’s streak of consecutive annual dividend increases to 19. Morningstar analysts expect that streak to continue, and they say management “appears comfortable maintaining a payout ratio at the high end of its 45%–55% target for utility earnings” and believe that it will do so as long as it continues to receive regulatory support. The stock is trading near its Morningstar fair value estimate, placing it in 3-star territory.

CME Group is a Chicago-based firm that operates investment exchanges that allow investors to trade futures and derivatives. It currently trades at around a 10% discount to fair value, landing it in 4-star territory. Based on its quarterly dividend alone, CME provides a forward yield of around 2.5%. But for the past 10 years, it has also paid a large variable dividend each January that has approached—or even exceeded, as it did this year—the annual total of the quarterly dividends. If you include the most-recent variable dividend when calculating CME’s yield, it pushes it to more than 4.5%.

Potential investors should keep in mind that while Morningstar analysts believe that the regular dividend can be maintained, they note that “the size of the special dividend can fluctuate from year to year based on the company’s results for the year and what cash it has on hand.” And if the company makes another major acquisition, they anticipate that the discretionary portion of the dividend could shrink or be eliminated in order to reduce leverage back to the firm’s long-term target.

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

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