3 Dividend Stocks for March 2023

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 March 2023

These 3-, 4-, and 5-star stocks earn are popular with income investors.

1. Coca-Cola KO
2. British American Tobacco BTI
3. International Flavors & Fragrances IFF

First up this month is Coca-Cola. Coca-Cola has provided annual dividend increases for the past 61 years, including a 4.5% raise that was declared last month. While such a streak doesn’t guarantee the dividend, I believe it points to the company’s commitment to maintaining (and increasing) its dividend during previous periods of inflation and other economic stressors.

The stock, which currently trades just above its Morningstar fair value estimate, now yields slightly above 3%, with 3.7% annualized dividend growth over the past five years. Looking ahead, Morningstar analysts expect the dividend to grow in line with earnings growth, with the dividend payout ratio stabilizing around 70%, which they view as prudent.

Next is British American Tobacco. On February 9, the firm’s board declared a 6% dividend increase in base currency. While the firm pays a set quarterly dividend, U.S. investors who purchase the American depositary shares will see a varying payout, as currency exchange rates fluctuate. British American Tobacco trades at a discount to its Morningstar fair value estimate, and based on current exchange rates, the stock provides a yield of just over 7%. Morningstar analysts note that the company “targets a payout ratio of at least 65%, putting it slightly below the 75%–80% targeted by its U.S. competitors,” though they also expect low future dividend growth.

Finally, International Flavors & Fragrances is a global leader in specialty ingredients and a company that has grown rapidly via acquisitions. IFF currently trades at a large discount to its Morningstar fair value estimate and yields 3.5%, with 5.4% annualized dividend growth over the past five years. When assessing IFF’s capital allocation, Morningstar analysts note that the current dividend rate, which represents 68% of consensus earnings for 2023, seems appropriate. During an earnings call last month, the company’s chief financial officer reiterated the firm’s commitment to growing its dividend, but also noted that it is considering reinstituting its share-repurchase program once its debt level is reduced, and that it will balance future dividend growth with repurchases.

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

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