4 Undervalued Stocks That Just Raised Their Dividends

Dividend stocks have been left in the dust in 2023 by a power rally in growth stocks, but that poor performance is opening opportunities for long-term investors to find undervalued dividend-payers, including those that have been raising their payouts.

Dividend investing comes in various forms. Investors can look for stocks that offer the highest yield, names with a history of stable dividend payouts and strong finances, or companies that are raising dividends.

For this article, we screened for stocks that have increased their quarterly dividends, which can be a sign of a company’s confidence in its future finances.

We combined this screen with one for stocks that are trading below their Morningstar fair value estimates, meaning they have attractive prices for long-term investors. These stocks offer investors the potential to benefit from both increased dividend yields and the possibility that their investment values will grow.

We started with the 672 U.S.-based companies covered by Morningstar analysts and looked for names that pay investors a quarterly dividend. We then tracked changes between any dividends declared during the third quarter of 2023 and the month of November. From there, we filtered for companies that saw a dividend increase of 2% or more to capture those with meaningful changes. Stocks with dividend yields under 2% were then excluded from the group. After that, we picked companies considered undervalued by Morningstar analysts, meaning they are rated 4 or 5 stars.

In all, four companies made it through.

Undervalued Dividend Stocks With Higher Dividends

• Evergy EVRG
• Huntington Ingalls Industries HII
• Regency Centers REG
• Tyson Foods TSN

Here are our analysts’ takes on the stocks with the largest dividend increases in the group.

Evergy

• Fair Value Estimate: $65.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Low
• New Forward Dividend Yield: 5%

“Evergy is one of the most undervalued utilities in our coverage, trading at a 23% discount to our fair value estimate. The stock’s dividend yield has climbed above 5%, one of the highest in the sector, after Evergy’s board raised the dividend by 5% this quarter, as we expected.

“We think Evergy can hit the high end of management’s new growth target based on its three-year $11.6 billion capital investment plan. This plan could go higher if regulators support Evergy’s revised 10-year integrated resource plan, filed earlier this year.”

Read more of Travis Miller’s outlook for Evergy.

Huntington Ingalls Industries

• Fair Value Estimate: $285.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low
• New Forward Dividend Yield: 2.1%

“Huntington Ingalls generates revenue on almost every significant military shipbuilding contract—in some cases as the only supplier, as with aircraft carriers. The company derives four-fifths of its revenue and practically all of its profits from building ships for the U.S. Navy. Ships are the longest-cycle defense product, as each vessel takes years to manufacture, remains in service for decades, and is typically purchased in blocks to reduce unit costs. These long lead times mean funding for a project, once awarded, is difficult to cut, and block purchases give the builder visibility into long-term revenue. Huntington Ingalls’ top line is therefore less sensitive to changes in the defense budget than those of its peers, making it a defensive play even among defense contractors.”

Learn more about Nicolas Owens’ take on Huntington Ingalls.

Regency Centers

• Fair Value Estimate: $76.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium
• New Forward Dividend Yield: 4.2%

“Regency Centers is the largest shopping center real estate investment trust, with 480 properties spread across more than 20 major U.S. metropolitan areas following the completion of the Urstadt Biddle acquisition in August 2023. Regency’s portfolio is filled with high-quality assets in population-dense, affluent markets. The company focuses on owning grocery-anchored centers, with over 80% of properties featuring a grocery anchor and grocery stores representing slightly more than 20% of annual base rent. The grocery anchors are strong draws to the centers, as they produce sales per square foot well above the national average and are very healthy, with low occupancy costs. The rest of the portfolio contains a substantial number of service-oriented tenants, which are naturally resistant to e-commerce pressures.”

Read more of Kevin Brown’s outlook for Regency.

Tyson Foods

• Fair Value Estimate: $82.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium
• New Dividend Yield: 3.8%

“Tyson primarily sells raw beef, pork, and chicken, although it has increased its exposure to prepared foods. Despite the scale it has amassed (with a sales base that exceeds $53 billion), meat is a commodity and carries little to no brand or pricing power, exposing sellers to volatility in both costs and revenue. Tyson’s strategy to sell three meats is intended to offer diversification, but diversification has its costs, and the headwinds of any one meat have weighed on companywide results at times. Additionally, we think there’s limited revenue or cost synergies across different proteins.

Find more about Kristoffer Inton’s outlook for Tyson.

Four Undervalued Stocks With Dividend Increases