Amid a down and up year for stocks, dividend-paying names have largely kept pace with the overall market. However, a number of income-paying stocks still trade at an attractive valuation, providing opportunities for long-term investors who want to purchase dividend payers at a discount.
Dividend investing comes in various forms. Investors can look for stocks with the highest yields, those with a history of stable dividend payouts and strong finances, or those raising dividends. Each month, we screen for US stocks covered by Morningstar that have increased their quarterly dividends, which can signal a company’s confidence in its future finances.
Here are two undervalued companies covered by Morningstar analysts that increased their dividends in August:
Screening for Undervalued Stocks That Raised Dividends
We started with the full list of US-based companies covered by Morningstar analysts, then looked for those that pay a quarterly dividend and declared a dividend payment in August. We tracked changes from previous dividend payouts and filtered for companies that saw a dividend increase of 2% or more to capture the most substantial changes. Stocks with dividend yields under 2% 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 increase. Two companies made it through the screen. A full list of stocks covered by Morningstar that raised dividends in August is at the bottom of this article.
Warner Music Group
- Morningstar Rating: ★★★★
- Fair Value Estimate: $37
- Fair Value Uncertainty: Medium
- Morningstar Economic Moat Rating: Narrow
“With our view that greater success from heavier investment would be questionable, we believe the level of Warner’s capital return to shareholders is appropriate. As a percentage of free cash flow, Warner’s dividend payout ratio has remained in the 50%-60% range since its 2020 IPO. ”
—Matthew Dolgin, CFA, Morningstar Senior Equity Analyst
Winnebago Industries
- Morningstar Rating: ★★★★★
- Fair Value Estimate: $75
- Fair Value Uncertainty: Very High
- Morningstar Economic Moat Rating: None
“In fall 2014, we were pleased to see the company resume its dividend, which had been eliminated in October 2008 due to the Great Recession. Dividends continued throughout the pandemic because the company experienced so much demand for RVs, and we like the large 50% increase in the dividend announced in August 2021 and again in August 2022, so shareholders can share in more of the wealth from the RV boom. More increases have occurred since that time. We expect dividends and some acquisitions to be priorities in addition to reinvesting in the business, including any acquisitions, with reinvesting the top priority.”
—David Whiston, CFA, CPA, CFE, Senior Equity Analyst
