4 Undervalued Stocks That Just Raised Dividends

Each month, we screen Morningstar’s coverage for undervalued stocks that have recently increased their dividend payouts. This past month, four companies on our list meaningfully increased their dividends.

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 filtered US stocks in the Morningstar Dividend Composite Index that have increased their dividends—a sign of management’s confidence in the company’s future finances.

Here are four undervalued stocks that increased their dividends by 2% or more in August:

• Intuit INTU
• ResMed RMD
• Broadridge BR
• Warner Music Group WMG

Screening for Undervalued Stocks That Raised Dividends

We started with a list of holdings from the Morningstar Dividend Composite Index covered by Morningstar analysts that 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 1.08% (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.

Four companies made it through the screen. A full list of stocks covered by Morningstar that raised dividends by 2% or more in August is at the end of this article.

Intuit

• Morningstar Rating
  : ★★★★
• Fair Value Estimate
  : $430.00
• Morningstar Uncertainty Rating
  : High
• Morningstar Economic Moat Rating
  : Narrow

In our view, Intuit’s commitment to a healthy dividend and repurchases makes sense given the predictable growth and profitability of the business. We expect Intuit to maintain a dividend payout ratio in the high-teens and increase the size of its share repurchase program over the next five years, thanks to the stable cash flows that the business brings in every year.

ResMed

• Morningstar Rating
  : ★★★★
• Fair Value Estimate
  : $300.00
• Morningstar Uncertainty Rating
  : Medium
• Morningstar Economic Moat Rating
  : Narrow

Shareholder distributions are appropriate. We forecast a 23% long-run dividend payout ratio. While this may appear relatively low, especially given ResMed’s high cash conversion, the company has opted for large share buybacks and has spent over USD 2 billion in strategic acquisitions since fiscal 2016 to take advantage of trends in digital health in the homecare setting.

Broadridge

• Morningstar Rating
  : ★★★★
• Fair Value Estimate
  : $250.00
• Morningstar Uncertainty Rating
  : Medium
• Morningstar Economic Moat Rating
  : Wide

We believe the firm’s capital investment decisions are fair. We believe the acquisition of DST’s North American customer communications for $410 million in 2016 was made at an attractive price at 10 times EBIT. Though there was some strategic merit, we view the 2021 $2.5 billion acquisition of Itiviti as pricey and being near the top of the cycle. We’re generally pleased with the internal growth of the global technology and operations segment. Broadridge aims for a dividend payout ratio of 40%-50%, with the remainder spent on share repurchases and acquisitions. We believe the dividend payout ratio is appropriate, given the low macroeconomic sensitivity of the firm’s business model.

Warner Music Group

• Morningstar Rating
  : ★★★★
• Fair Value Estimate
  : $40.00
• Morningstar Uncertainty Rating
  : 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. However, we don’t think annual dividend increases by rote are the best use of excess cash. With another dividend increase in 2025, the dividend payout ratio reaching 70%. With what we see as an undervalued stock, we’d prefer Warner being open to share repurchases.