As the overall stock market has bounced back from its tariff-induced plunge, dividend stocks are again lagging. However, that underperformance has a number of income-paying stocks trading in undervalued territory.
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 dividends. We screened 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 May:
Screening for Undervalued Stocks That Raised Dividends
We started with the full list of US-based companies covered by Morningstar analysts, then looked for names that pay a quarterly dividend to investors and declared a dividend payment in May. 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.
Two companies made it through the screen. A full list of stocks covered by Morningstar that raised dividends in May is at the bottom of this article.
PepsiCo
“On shareholder distributions, PepsiCo has returned cash to shareholders consistently with a combination of cash dividends and share buybacks. It maintained a payout ratio averaging 66% over the past three years, with dividends per share growing at a high-single-digit rate annually.
“Over our 10-year explicit forecast period, we forecast the payout ratio to gradually rise to 72% by 2033, with the dividend payment growing at 6% annually. Share buybacks have fluctuated from year to year, which we believe has been prudent, as we believe management should consider buybacks only when the stock trades below its intrinsic value, without committing to a yearly target at a fixed amount.”
—Dan Su, equity analyst
EOG Resources
“We assign EOG’s management an Exemplary Capital Allocation Rating. Our assessment reflects EOG’s robust balance sheet, a sound investment strategy, and appropriate distributions. This sound investment strategy has helped EOG avoid corporate M&A and instead focus on using scale and technical savvy to build an extensive low-cost asset portfolio.
“EOG has had a regular, growing dividend since it became an independent company in 1999. That dividend has never been cut or suspended, and we think it will likely have more than enough cash to continue covering both its fixed and variable dividend.”
—Joshua Aguilar, director