3 Superior Dividend Stocks on Sale

Susan Dziubinski: How can you be sure the stock you own today won’t cut its dividend tomorrow?

Morningstar research has found that two particular factors can lead investors to stocks with safe dividends: economic moats and distance-to-default scores.

Companies with economic moats have significant competitive advantages and are able to successfully sustain their profits and fend off competitors. Distance to default, meanwhile, measures balance sheet strength and the likelihood of bankruptcy.

Today we’re looking at three wide-moat companies with solid balance sheets and favorable distance-to-default scores that are trading below our fair value estimates. We think of them as superior dividend stocks on sale.

3 Superior Dividend Stocks on Sale

These 4- and 5-star stocks look undervalued. Data as of Feb. 16, 2023.

1. Comcast CMCSA
2. International Flavors & Fragrances IFF
3. Western Union WU

The first sturdy-dividend stock on our list is Comcast. Comcast is best known for its well-entrenched core cable business, but it also owns NBCUniversal, which holds unique content franchises and theme parks. Despite weak broadband customer growth lately, Morningstar thinks Comcast will limit broadband share losses to competitors in the coming years and enjoy solid pricing power. In fact, we expect Comcast to deliver modest growth with strong cash flow for the foreseeable future. Comcast first instituted a dividend in 2008 and has increased its payout eightfold since then. We think shares are significantly undervalued today and are worth $60 each.

Next is International Flavors & Fragrances. International Flavors & Fragrances is the largest specialty ingredients producer globally. Morningstar thinks 2023 may be a tough year for the company, as cost inflation and an economic slowdown lead to lower volumes. That being said, we view the company’s balance sheet as sound and its dividend appropriate. And with shares trading significantly below our $140 fair value estimate, we think there’s strong upside here for long-term investors.

Our last undervalued stock with a stable dividend is Western Union. Western Union is the largest money transfer company in the world. The company has experienced revenue declines, and Morningstar expects that to continue this year as management invests to grow the business. We think the key to maintaining the company’s competitive position hinges on its ability to improve its digital offerings. In fact, the company recently brought in a new CEO from the world of electronic payments. Western Union has increased its dividend significantly in recent years. Shares are trading well below our $18 fair value estimate.

For more stock ideas, be sure to subscribe to Morningstar’s YouTube channel and visit Morningstar.com.

Morningstar director Michael Hodel, strategist Seth Goldstein, and senior analyst Brett Horn provided the research behind this segment.

Watch “3 Warren Buffett Stocks to Buy” for more from Susan Dziubinski.