2 Undervalued Stocks That Just Raised Dividends

With the Federal Reserve recently cutting interest rates by a surprising 50 basis points, the broad stock market has pushed to new highs. Dividend stocks are again lagging after a spell of outperformance this summer. This provides opportunities for long-term investors to find undervalued names, including ones raising their payouts

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

For this article, we screened for stocks 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 September:

• US Bancorp USB
• Verizon Communications VZ

Screening for Undervalued Stocks That Raised Dividends

We started with the full list of US-based companies covered by Morningstar analysts and looked for names that pay a quarterly dividend to investors. We then tracked changes between any dividends declared in August. Finally, we filtered for companies that had a dividend increase. Stocks with dividend yields under 2% were excluded.

We picked companies considered undervalued by Morningstar analysts (those rated 4 or 5 stars), meaning they have attractive prices for long-term investors. These stocks offer investors the potential to benefit from increased dividend yields and the possibility their investment values will grow.

In all, two companies made it through. A list of stocks covered by Morningstar that raised dividends can be found at the bottom of this article.

U.S. Bancorp

• Morningstar Rating: 4 stars
• Fair Value Estimate: $53.00
• Fair Value Uncertainty: Medium
• Economic Moat: Wide

“We assess the company’s capital return strategy as appropriate. US Bancorp, like most banks, targets a payout ratio for dividends and uses some of its earnings to invest back into growth, and any extra capital can be returned to shareholders via repurchases.”

—Michael Wong, sector director

Verizon Communications Inc

• Morningstar Rating: 4 stars
• Fair Value Estimate: $53.00
• Fair Value Uncertainty: Medium
• Economic Moat: Narrow

“Shareholder distributions are on the high side. The dividend consumed roughly 60% of free cash flow during 2023. The calculation of free cash flow excludes spectrum purchases. While we don’t expect any major spectrum transactions over the next couple of years, Verizon needs to maintain a strong balance sheet to ensure it has the ability to participate when licenses become available. Management has previously said it could resume share repurchases before hitting its long-term leverage targets. However, we believe repurchases in the near term would be too aggressive, given current debt levels and the commitment to the dividend.”

—Michael Hodel, director of communications, services equity research