The firm’s analysts give them a wide margin, which means they will have competitive advantages for at least 20 years.
In a time of stock market volatility like the present, dividend stocks are often a safe haven. They can offer regular dividend payments and the potential for capital gains.
Morningstar Quotes three dividend stocks you might want to consider. The firm’s analysts give all of them a wide moat, meaning the companies have competitive advantages that will last at least 20 years.
Two of the stocks are substantially undervalued compared to Morningstar analysts’ fair value estimates, and one is slightly overvalued. The dividend yields below are forward yields, which means they are calculated based on the last declared dividend.
british american tobacco
(BTI) – Get a free report
Morningstar analyst Philip Gorham puts the fair value of the stock at $50, and it recently traded at $37.40. Dividend yield: 7.35%.
The company is targeting a payout rate of at least 65%, compared with the 75% to 80% its US competitors are targeting, Morningstar analysts said. But they expect low future dividend growth from BAT. The payout ratio represents the dividend per share divided by the earnings per share.
“While we believe there is an upward valuation for BAT, we are concerned that the company will be caught between a rock and a hard place in its drive to review its portfolio while maintaining high levels of return on capital for shareholders,” Gorham said.
On the bright side, BAT reported “slightly better preliminary 2022 results than we had anticipated, thanks to slightly lower price elasticity than we had anticipated in Europe.”
Coca Cola
(IS) – Get a free report
Morningstar analyst Dan Su puts the stock’s fair value at $58, and it recently traded at $60. Dividend yield: 3.05%.
Coca-Cola has increased its dividend for 61 consecutive years, including a 4.5% increase declared last month. “While such a streak does not guarantee a dividend, it indicates the company’s commitment to maintaining and increasing its dividend during periods of inflation and other stressful economic factors,” wrote David Harrell, editor of Morningstar’s DividendInvestor newsletter.
Looking ahead, “we expect the dividend payout to grow in line with earnings growth (high single digits), with the dividend payout rate stabilizing at around 70%, which we consider prudent.” Su wrote in a comment. He praises Coca-Cola’s “impressive” brands, pricing power and close relationships with retailers.
International Flavors and Fragrances
(IFF) – Get a free report
Morningstar analyst Seth Goldstein puts the stock’s fair value at $140, and it recently traded at $88.60. Dividend yield 3.53%.
IFF is a world leader in specialty ingredients. The dividend grew 5.4% annualized in the last five years.
“Where the market views caution, we view the current price as an excellent opportunity for long-term investors to purchase shares,” Goldstein wrote.
“The market is concerned that cost inflation will continue to hurt earnings and is skeptical of management’s long-term growth strategy.”
But Goldstein obviously disagrees. “We see little long-term impact from cost inflation,” he said.
“We analyzed IFF’s business during previous times of cost inflation and found that short-term earnings were affected by inflation, but there was no long-term impact. In addition, we believe that management’s long-term growth strategy is likely to be successful.”
The author owns shares of Coca-Cola and International Flavors & Fragrances.
