You might consider dividend stocks, which can provide regular income payments and potential capital gains.
With the stock market so volatile in recent months, you might want to consider dividend stocks, which can provide regular income payments and potential capital gains.
David Harrell, editorial director of Morningstar Investment Management, recently took a look at three popular dividend stocks that Morningstar analysts assign moats (lasting competitive advantages).
United Parcel Service (UPS) – Get a free reportthe delivery service.
Morningstar analyst Matthew Young gives the company a wide margin and puts the fair value of the shares at $179. It recently traded for $189.
The company is approaching dividend aristocrat status, which means dividend increases for at least 25 consecutive years. UPS could achieve that by 2025, Harrell says. In early 2022, UPS increased its dividend by almost 50%. It recently returned 3.4%.
“UPS just announced its dividend increase for 2023, which, as expected, was more modest than last year: an increase of about 6.5%,” Harrell said.
“Last year’s increase represented a structural change in the company’s dividend approach, raising the payout ratio,” he said.
“It also followed a year of extremely strong earnings growth. Continued increases will likely more closely track the company’s annual earnings growth rate.
Shutterstock
Lockheed Martin has a wide pit
Lockheed-Martin (LMT) – Get a free reportthe aerospace defense contractor
Morningstar analyst Nicolas Owens gives the company a wide moat and puts the fair value of the shares at $437. It recently traded for $469.
The company has raised its quarterly dividend rate by 20 cents for each of the past five years. That’s all, great, but it means that dividend increases have been reduced by percentage each year, Harrell notes.
“Still, the most recent increase represented a 7.1% increase, and five-year annualized dividend growth is a healthy 9.4%.”
In any case, Lockheed represents an example of how dividend growth can delay stock price appreciation, resulting in lower returns. The stock recently returned 2.6%, down from 3.1% a year ago, thanks to a 37% share price rise in 2022.
Paramount is expected to invest in content
world paramount (FOR) – Get a free reportthe stalwart of video media.
Morningstar analyst Neil Macker gives the company a narrow moat and puts the fair value of the shares at $45. It recently traded for $24.
Paramount Global was formed by the meeting of Viacom and CBS in 2022. “While Paramount trades at a deep discount to (Macker’s) fair value and currently offers a yield of more than 4%, future dividend growth could be minimal,” Harrell said.
Macker expects Paramount to invest more aggressively in creating content and revitalizing Paramount’s cable networks and studio, as well as paying off the debt burden.
But, “management hasn’t mentioned the dividend in the three earnings calls since the merger,” Harrell explained.
“The current dividend represents more than half of the consensus earnings for 2022 and a larger percentage for fiscal 2023. This does not look promising for any near-term dividend increases.”
