With earnings season over, but opportunities for income and growth always in style, now is a good time to sift through the trove of dividend stocks that have upped their payouts.
Investors seeking dividend stocks have a variety of factors they can consider. They may look at companies known for stable dividend payouts and strong finances, as well as ones that distribute the highest yields. But looking at firms that raised their dividends is also an option.
For this piece, we screened for stocks that have increased their quarterly dividends, which can be a sign of how confident a company is in its future finances. Then, 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. The following stocks offer investors the chance to benefit from both increased dividend yields and growing investment values.
5 Undervalued Stocks With Dividend Increases
How We Screened for Stocks With Increased Dividends
We started with the U.S.-based companies covered by Morningstar analysts that pay a quarterly dividend. We then tracked changes between any dividends paid from the end of the second quarter of 2023 and the most recent dividends as of Sept 6.
We filtered for companies that saw a dividend increase of 5% or more to capture the most substantial changes. Stocks with dividend yields under 2% were excluded from the group. We then selected companies considered undervalued by Morningstar analysts—those rated 4 or 5 stars.
We found 24 companies that made the cut. However, 10 of them were featured in our Aug. 2 screen and excluded from this piece. Among the new stocks, we’re highlighting the top five that had the biggest dividend increase.
A table with all 14 stocks that raised their dividends, plus the details of the changes, is at the bottom of this article.
- Annualized Dividend per Share: $1.40
- Dividend Yield: 4.29%
- Discount to fair value estimate: 43%
“Narrow-moat Tapestry’s results fell slightly short of our expectations in its June-ended fiscal 2023 fourth quarter, as its North America sales dropped 8%. In addition, the firm’s fiscal 2024 guidance for sales of nearly $6.9 billion and EPS of $4.10-$4.15 is shy of our pre-earnings-call respective estimates of $7.04 billion and $4.36.
“Tapestry’s report came one week after it announced that it will buy no-moat Capri, which reported a 10% decline in its quarterly sales, for $57 per share (see our previous notes). Despite an expected reduction in our fiscal 2024 estimates to incorporate Tapestry’s new guidance, we expect to lift our fair value estimate to about $60 from $57 as it is buying Capri at a discount to our valuation. We believe investors are underestimating the benefits of the deal and view Tapestry’s shares as attractive.”
—David Swartz, Morningstar senior equity analyst
- Annualized Dividend per Share: $2.72
- Dividend Yield: 2.56%
- Discount to fair value estimate: 31%
“Narrow-moat Skyworks Solutions reported predictably soft fiscal third-quarter results and provided investors with a decent outlook for the September quarter. We think the outlook implies that Skyworks will earn a good amount of radio frequency chip content within Apple’s upcoming iPhone 15 series, but with little dollar content growth per device versus last year’s iPhone 14 series. Meanwhile, Android smartphone demand is recovering slightly but still severely depressed overall.
“Skyworks expects September-quarter revenue in the range of $1.19 billion-$1.24 billion, which, at the midpoint, would be down 14% year over year but up 13% sequentially during the seasonally stronger period ahead of the iPhone ramp. Broad market revenue should be down slightly sequentially, again with [Internet of Things] weakness. We project that mobile revenue will decline about 13% year over year, and project revenue from Apple to be down about 9% year over year.”
—Brian Colello, Morningstar technology sector director
Bank of America
- Annualized Dividend per Share: $0.96
- Dividend Yield: 3.38%
- Discount to fair value estimate: 19%
“[Bank of America] now has one of the best retail branch networks and overall retail franchises in the United States, is a Tier 1 investment bank, is a top four U.S. credit card issuer, is a top three U.S. acquirer, has a solid commercial banking franchise, and owns the Merrill Lynch franchise, which has turned into one of the leading U.S. brokerage and advisor firms.
We believe that scale and scope advantages are increasingly important as the role of technology in banking grows. Bank of America is seeing increasing mobile adoption, has access to data on millions of customers, and has one of the largest tech budgets in the industry. Given the scalability of these platforms, we believe these factors will only matter more as the industry progresses.”
—Eric Compton, Morningstar strategist
- Annualized Dividend per Share: $3.12
- Dividend Yield: 3.11%
- Discount to fair value estimate: 16%
“While the midpoint of management’s increased assumes demand begins to return in the fourth quarter, we forecast Ingredion will finish closer to the bottom of the guidance range, which implies demand does not return in 2023.
“Regardless, we continue to think Ingredion is well positioned for steady, long-term profit growth as the company benefits from shifting consumer preferences that drive demand for Ingredion’s specialty products, such as growing demand for natural sweeteners. Over time, this should shift Ingredion’s sales and profit mix from our estimates of 34% and 51% of sales and profits, respectively, coming from specialty ingredients, to 60% and 40% over the next several years. In turn, this should drive less volatility in profits over time as the company’s commodity tend to be subject to greater cyclicality.”
—Seth Goldstein, Morningstar strategist
- Annualized Dividend per Share: $2.36
- Dividend Yield: 3.58%
- Discount to fair value estimate: 16%
“Even as it has spent behind its brands, capabilities, and capacity, General Mills eked out margin expansion in the [fiscal 2024 fourth] quarter, driven by higher prices and its unrelenting focus on extracting inefficiencies from its operations. The adjusted gross margin popped 120 basis points to 35% (generally in line with its historic prepandemic average).
“Management stressed inflation remains a challenge, particularly as it relates to labor at suppliers, co-manufacturers, warehousing and logistics, as well as its own plants, and these higher costs are slated to represent 5% of cost of goods sold in fiscal 2024. While the firm didn’t convey its intent to raise prices further, we surmise it will continue to employ its full arsenal to blunt the hit to profits. When taken together, we continue to forecast low-single-digit annual sales growth and high-teens operating margins longer term.”
—Jaime M. Katz, Morningstar senior equity analyst
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.