10 Dividend-Growth Stocks to Buy Now: Morningstar

Companies with a history of steady dividend increases have lagged the broader market this year, Morningstar investment specialist Susan Dziubinski reported in a recent blog post. The Morningstar US Dividend Growth Index has underperformed the Morningstar US Market Index by more than 2 percentage points through Oct. 18.

Dan Lefkovitz, a strategist with Morningstar Indexes, blames 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," he said in the post.

Dziubinski laid out a few factors that she said benefit dividend-growth stocks.

Companies with growing dividends tend to be profitable and financially healthy, two desirable qualities during periods of economic slowdown. They are also likelier to have competitive advantages that may allow them to pass along price increases and thereby maintain margins during inflationary times.

Dividend-growth stocks also tend to be less volatile than the overall stock market and so are attractive investments for playing some defense.

Morningstar analysts identified 10 stocks in the US Dividend Growth Index 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 largest discounts to the firm's fair value estimates as of Sept. 16.

See the accompanying gallery for Morningstar analysts' 10 stock picks, ranked by price to fair value ratio. Year-to-date performance is as of Oct. 23.