10 Dividend-Growth Stocks That Are Cheap Now: Morningstar

Companies with a history of steady dividend increases have lagged the broader market lately, Morningstar investment specialist Susan Dziubinski wrote in a recent blog post. She noted that the Morningstar US Dividend Growth Index has underperformed the Morningstar US Market Index by nearly 3 percentage points over the trailing one-year period ended May 31. Why have dividend-growth stocks underperformed? Dan Lefkovitz, a strategist with Morningstar Indexes, puts the blame on the narrow technology-led stock market during much of that time. "Dividend-payers may lag during market environments led by hot growth stocks, but in down periods like 2022 and 2018, they show resilience," Lefkowitz said. Even so, investors can find stocks with a history of dividend increases that currently look undervalued. Dividend-growth stocks have several things going for them, according to Dziubinski. For one, companies with growing dividends tend to be profitable and financially healthy — valuable qualities during periods of economic uncertainty. For another, companies with a history of dividend increases are also more likely to have competitive advantages that may allow them to pass along price increases and thereby maintain margins during inflationary times. As well, dividend-growth stocks tend to be less volatile than the overall stock market, Dziubinski said, and so are attractive investments for playing defense. To uncover some cheap dividend-growth stocks for investors to investigate further, Morningstar analysts culled the US Dividend Growth Index for ones that have steadily increased their dividends over the past five years, pay out no more than 75% of their earnings in the form of dividends, have competitive advantages as measured by the Morningstar economic moat rating and were trading at among the widest discounts to the firm's fair value estimates as of June 3. See the accompanying gallery for 10 cheap, dividend-paying stocks. Year-to-date performance is as of June 11.