David Harrell: Hi. I’m David Harrell, editor of the Morningstar DividendInvestor newsletter. In this monthly series, we take a look at the dividend prospects of three stocks that are popular with income investors.
3 US Dividend Stocks for March
Altria MO, which is the biggest producer and marketer of cigarettes and smokeless tobacco in the United States, has a forward yield of 7.3%, along with a long streak of consecutive annual dividend increases. Management said the most recent raise, back in August, marked “the 59th increase in the past 55 years.” However, while it’s a constituent of the S&P 500 index, Altria does not appear in the S&P 500 Dividend Aristocrats index. While investors might not have seen a decrease in their total dividends following the spinoff of Philip Morris International in 2008, assuming they held on to those shares, the dividend per share for Altria alone did decline at that time. Altria has increased its dividend at an annualized rate of 5.1% over the past five years. Looking ahead, Morningstar analysts expect the dividend to grow at a slightly lower rate, noting that, “Historically, the company targeted an 80% payout ratio but updated its policy to target mid-single-digit dividend growth annually.” They think that this is more than achievable and forecast annual dividend growth of about 4.5%. The stock currently trades roughly in line with its $58 Morningstar fair value estimate, placing it in 3-star territory.
Soft drink and snack giant Pepsi PEP currently yields 3.5% and has provided 7% annualized dividend growth over the past five years. Following its 7.1% dividend hike in November, Pepsi can now tout 52 consecutive years of annual dividend increases. In their assessment of the company’s capital allocation, Morningstar analysts noted that PepsiCo has returned cash to shareholders consistently with a combination of cash dividends and share buybacks. It has maintained a payout ratio averaging 67% over the past three years, with dividends per share growing at a high-single-digit rate annually. Over their 10-year explicit forecast period, they expect the payout ratio to gradually rise to 72% by 2033, with the dividend payment growing at 7% annually. The stock currently trades at around a 10% discount to its Morningstar fair value estimate.
Asset manager T. Rowe Price TROW has provided solid dividend increases in recent years, and its five-year dividend growth stands at 11.8% annualized. The company also paid a large special dividend that boosted its payout in 2021, but that hasn’t been repeated. The company recently declared a 2.4% dividend increase that pushed the stock’s forward yield to 4.8%. When assessing the company’s financial strength, Morningstar analysts noted that the “dividend payout ratio is currently at the upper end of the 45%–55% range we’ve seen historically, but management remains committed to using the company’s strong financial position to grow its dividend.” The stock currently trades for a 15% discount to its Morningstar fair value estimate.
I’m David Harrell from Morningstar DividendInvestor. Thanks for watching, and we’ll see you next month.
Watch Where to Find Bargain Stocks in an Expensive Market for more from David Ha-rell.
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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