With investors rotating out of the big technology stocks and other growth names that have led the bull market, dividend stocks have seen renewed interest in early 2025. However, after a long period of underperformance, many undervalued dividend names could offer opportunities for long-term investors.
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. We screened US stocks covered by Morningstar that have increased quarterly dividends, which can signal a company’s confidence in its future finances. Here are 12 undervalued companies that increased their dividends in February:
- Dell Technologies DELL
- SBA Communications SBAC
- Devon Energy DVN
- Occidental Petroleum OXY
- Equity Lifestyle Properties ELS
- Macy’s M
- Weyerhaeuser WY
- L3 Harris Technologies LHX
- WK Kellogg KLG
- Brunswick BC
- Healthpeak Properties DOC
- United Parcel Service of America UPS
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 January. 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 grow.
Twelve companies made it through the screen. A full list of stocks covered by Morningstar that raised dividends in February is at the bottom of this article.
Dell Technologies
“Dell’s capital allocation priorities include investing in its product portfolio (both organic and opportunistic inorganic), increasing its mix toward higher-margin business areas (ISG, Commercial PCs), and returning cash to shareholders. Dell maintains a dividend and aims to increase it each year while systematically repurchasing shares. Dell targets returning 80% of free cash flow to shareholders, which we think is appropriate as it gives some flexibility for growth investments while acknowledging that many businesses they are in are more mature and should be more cash flow and shareholder return focused.”
—Eric Compton, director of equity research, technology
SBA Communications
“SBA has prioritized dividends recently, growing its payout to $4.44 per share as of 2025 and marking a 35% annual growth rate since the inception of its dividend in 2019. Even when accounting for a reduced leverage ratio through our forecast period, we forecast management increasing dividends 15% per year through 2028 and still having ample capacity for additional dividend growth or share repurchases. While we favor its dividend strategy, we believe repurchases have been untimely. The firm began repurchasing stock in 2017, buying back nearly 30 million shares (roughly 28% of its 2023 diluted share count). From 2020 to 2022, when US investment in its 5G hit a peak and shares of SBA were overvalued, the firm bought back 6.2 million shares at an average price of $299.90, well above our $264 fair value estimate. We prefer management remain more opportunistic regarding repurchases rather than just augment its annual dividend.”
—Samuel Siampaus, equity analyst
Devon Energy
“Beginning in late 2020, Devon introduced its capital return framework that prioritizes returning cash to shareholders through fixed and variable dividends, as well as buybacks. Devon was the first among US industry peers to introduce a variable dividend. We like this shareholder-friendly decision, which was well-received by the market. We’re typically reticent about E&P firms that pursue growth at the cost of returns, as was common in the years following the US shale revolution.”
—Joshua Aguilar, director
Occidental Petroleum
“Just as it essentially reached its debt goals, Occidental announced the acquisition of CrownRock for $12 billion. We expect the firm will have sufficient cash from both divestitures and free cash flow to service the associated debt obligations, even in a weaker commodity price environment. The deal will nevertheless keep debt management at the top of management’s capital allocation priorities, just behind dividend distributions, for the foreseeable future. Regarding shareholder distributions, we expect the firm to meet or exceed the standard for capital returns that its peers have recently set. However, it must match distributions above $4 per share with preferred equity redemptions (including a 10% premium). In practice, the simultaneous deployment of surplus cash to preferred and common shareholders is probably the best outcome as the preferred equity incurs interest at a relatively high rate (8%).”
—Joshua Aguilar
Equity Lifestyle Properties
“We assess the company’s capital return strategy as appropriate, as Equity Lifestyle has averaged a dividend payout ratio of 70% of funds available for distribution over the past several years. We think this is an appropriate level for a REIT, which should allow the company to consistently raise dividends in line with the company’s operating cash flow growth.”
—Kevin Brown, senior equity analyst
Macy’s
“We think Macy’s has a fair record of returning cash to shareholders in stable times. Macy’s paused buybacks and dividends during the pandemic but has since resumed share repurchases and reinstated its quarterly dividend (now at $0.1737 per share). Macy’s stock repurchases totaled $1.9 billion in 2014, $2 billion in 2015, and $316 million in 2016 until it halted repurchases in 2016 to use cash for debt reduction instead. The firm repaid about $3.5 billion in debt over 2016-19, which brought it below its target debt/adjusted EBITDA of 2.5-2.8 times. In 2021, it resumed repurchases, buying back $500 million in shares at an average price of $24.40. Then, in 2022, it repurchased an additional $600 million in shares at an average price of $24.98. Macy’s has since reduced buyback activity to shore up its balance sheet and fund investments, but we anticipate repurchases will resume at some point in 2025. The firm has at times repurchased shares at prices above our fair value estimates, which we view as inefficient. We forecast Macy’s will generate an average of about $770 million per year in free cash flow to the firm over the next decade and use it for debt reduction, dividends, and stock buybacks.”
—David Swartz, senior equity analyst
Weyerhaeuser
“Weyerhaeuser consistently pays a dividend while periodically repurchasing shares during strong quarters when lumber prices are high, and the company has a strong cash position. Management has targeted an annual base dividend growth of 5% annually and recently increased its share repurchase authorization. We expect Weyerhaeuser will be able to meet its distribution goals as the firm continues to generate strong free cash flow.”
—Spencer Liberman, equity analyst
L3 Harris Technologies
“We think shareholder distributions have been appropriate. The firm divested a sizable portion of non-core L3 assets in 2020 and 2021 and used the proceeds for share repurchases. Management intends to use a large proportion of free cash flow for share repurchases going forward. The firm has said it intends to refinance, rather than repay, much of its debt so that it can focus on repurchases. We think this is sensible for an acyclical defense contractor with a well-funded pension like L3Harris. That noted, while we understand the market rewards firms that pay shareholders, we would be more comfortable applying a lower cost of equity to the firm if it had less debt, so we think L3Harris could increase its intrinsic value by paying down debt.”
—Nicolas Owens, equity analyst
WK Kellogg
“We anticipate WK Kellogg will prioritize shareholder distribution, with a dividend payout ratio that we expect will be 45%-55% longer term. We forecast that a low-single-digit percentage of shares will be repurchased starting in fiscal 2028, which we view as a judicious use of cash when executed at a discount to our assessment of intrinsic value.”
—Erin Lash, sector director
Brunswick
“We deem cash distributions as appropriate, with the management team returning capital to shareholders when optimal. As such, it pruned share repurchases early in the covid-19 cycle but resumed more significant repurchases beginning in 2022, given the strong demand that has persisted. Additionally, Brunswick has consistently raised its dividend over the last decade, most recently lifting the payout to $0.42 per quarter, to return excess capital to shareholders. We expect any further excess cash to pay for strategic acquisitions without adding debt, supporting optimization of vertical opportunities, which could provide economic synergies.”
—Jaime M. Katz, senior equity analyst
Healthpeak Properties
“We assess the company’s capital return strategy as appropriate, as Healthpeak has averaged a dividend payout ratio near 80% of normalized funds from operations the past several years. We think this is an appropriate level for a REIT, and while the payout ratio went above this level in 2020 and 2021 due to the disruption caused by the pandemic and the senior housing dispositions, Healthpeak returned to an 80% payout level in 2022 and we believe that the company will remain around this level for the foreseeable future.”
—Kevin Brown, senior equity analyst
United Parcel Service Of America
“We assign UPS a Standard Morningstar Capital Allocation Rating, which reflects our assessment that the company’s balance sheet is sound and the quality of its investing (reinvestment and acquisitions) is reasonable and supports its strong competitive positioning.
“Four-decade UPS veteran David Abney retired in June 2020, and the firm hired Carol Tomé to replace him as CEO. Tomé had been a UPS board member since 2003 and served as chair of the audit committee. She was previously CFO of Home Depot. UPS’ execution under Tomé has been generally positive in terms of operational efficiency gains. Also, management has reduced capital outlays, which approximated 5% of revenue in 2022 and 5.7% in 2023 versus roughly 7.5% on average between 2016 and 2020. Painful union-contract wage inflation and falling Amazon volumes have made the job a bit harder, however.”
—Matthew Young, 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.
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