An Undervalued Stock That Just Raised Its Dividend

Each month, we screen Morningstar’s coverage for US stocks that have recently increased their dividend payouts. This month, seven US companies we follow raised their dividends. Of those, one with a meaningful increase is seen as undervalued.

Dividend investing comes in various forms. Investors can look for stocks with the highest yields, those with a history of stable payouts and strong finances, or those raising their dividends. We looked for US stocks in the Morningstar Dividend Composite Index covered by Morningstar analysts that have increased their dividends—a sign of management’s confidence in the company’s future finances.

Here is the undervalued company under Morningstar analyst coverage that increased its dividend by at least 2% in September:

• McDonald’s MCD

We started with a list of holdings from the Morningstar Dividend Composite Index covered by Morningstar analysts that declared a dividend payment in September. We tracked changes from previous dividend payouts and filtered for companies with an increase of 2% or more to capture the most substantial changes. Stocks with dividend yields under 1.04% (the average yield of stocks in the Morningstar US Total Market Index) were excluded.

Lastly, we picked companies rated 4 or 5 stars by Morningstar analysts, meaning they are considered undervalued. These stocks offer investors the potential to benefit from increased dividend yields and the possibility that their investment values will grow.

One company made it through the screen. A full list of stocks covered by Morningstar that raised dividends by 2% or more in September is at the bottom of this article.

McDonald’s

• Morningstar Rating
  : ★★★★
• Fair Value Estimate
  : $295.00
• Morningstar Uncertainty Rating
  : Low
• Morningstar Economic Moat Rating
  : Wide

We assign McDonald’s an Exemplary Capital Allocation Rating. We view McDonald’s investment efficacy and strategy under CEO Chris Kempczinski’s direction, who took the helm in late 2019, as prudent, focusing on centralizing systems, data, and technology, while remaining committed to investing in key engagement drivers such as loyalty, menu development, and technology.

We view shareholder distributions as appropriate. We expect dividend growth of 9% annually on average over the next decade, supporting a long-term payout ratio of 59%, which is in line with peers. The $15 billion share repurchase plan authorized in 2025 is also a prudent use of capital when executed at a discount to our fair value estimate.