It’s harder to find value in an overcooked stock market.
After a nine-year rally in U.S. stocks, some investors are starting to rotate away from high-growth, high-risk stocks and into the relative safety of dividend-paying value stocks. Unfortunately, the S&P 500’s price-earnings ratio is way above its historical average, so it takes some digging to find decent value these days. Morningstar recently compiled a list of stocks with the one-two punch of growing dividends and compelling values. Here are seven value stocks to buy with dividend yields of at least 2 percent and a history of raising dividend payouts.
Cardinal Health (ticker: CAH)
Analyst Vishnu Lekraj says the pharmaceutical industry may experience some major changes in coming years, but there will always be demand for inexpensive drug sourcing and delivery. Cardinal Health specializes in drug wholesaling, making the company a key partner for both drug manufacturers and retail pharmacies. Lekraj projects Cardinal will expand its operating margins by 0.25 percent to 2.49 percent by fiscal 2022. Cardinal has a 3.6 percent dividend yield and a five-year average dividend growth rate of 10.2 percent. Morningstar has an “undervalued” rating and $82 fair value estimate for CAH stock.
General Mills (GIS)
General Mills has a dominant 30 percent market share of the U.S. ready-to-eat cereal market and an 18 percent share of the yogurt market. Analyst Sonia Vora says General Mills will likely ramp up its advertising and research budget to above 7 percent of total sales over the next decade as it develops and launches new products to fend off private-label competition. General Mills has a 4.2 percent dividend yield and a five-year average dividend growth rate of 0.6 percent. Morningstar has an “undervalued” rating and $59 fair value estimate for GIS stock.
BlackRock (BLK)
BlackRock is the largest asset manager in the world with more than $6.3 trillion in total assets under management. Analyst Greggory Warren says BlackRock’s size and diversification are unique and provide long-term stability during cyclical downturns in individual asset classes and/or shifts in market behavior. Even at its massive size, BlackRock has consistently delivered annual organic growth of more than 4 percent. BlackRock has a 2.5 percent dividend yield and a five-year average dividend growth rate of 8.2 percent. Morningstar has an “undervalued” rating and $600 fair value estimate for BLK stock.
Franklin Resources (BEN)
With more than $724.1 billion in total assets under management, Franklin Resources is one of the largest U.S. asset managers. Poor performance in Franklin’s international equity business has resulted in negative growth in recent quarters, but Warren says the company has the resources to right the ship. Warren says Franklin could also benefit from an improvement in the international bond market. Franklin Resources has a 2.7 percent dividend yield and a five-year average dividend growth rate of 10.7 percent. Morningstar has an “undervalued” rating and $41 fair value estimate for BEN stock.
Starbucks Corp. (SBUX)
Starbucks has struggled to hit same-store sales growth expectations in recent quarters, but analyst R.J. Hottovy says Starbucks still has several long-term growth levers. Those levers include international growth, menu innovation and product diversification. Even in the U.S. market, Hottovy says Starbucks could grow its business by experimenting with different store formats, such as premium destinations, express stores, drive-thrus and kiosks. Starbucks has a 2.7 percent dividend yield and a five-year average dividend growth rate of 17.3 percent. Morningstar has an “undervalued” rating and $64 fair value estimate for SBUX stock.
McDonald’s Corp. (MCD)
McDonald’s CEO Steve Easterbrook has found success with his Experience of the Future technology integration, and Hottovy says McDonald’s has taken several key steps to ensure revenue growth in the digital age. Easterbrook has focused on increasing focus on order flexibility (via counter, kiosk, web or mobile), mobile payment and delivery alternatives, such as Uber Eats. McDonald’s has a 2.4 percent dividend yield and a five-year average dividend growth rate of 22.9 percent. Morningstar has a “fairly valued” rating and $190 fair value estimate for MCD stock.
Procter & Gamble Co. (PG)
Procter & Gamble has been aggressively trimming its total brands down from roughly 165 to 65 in recent years, and analyst Erin Lash says the company is finally positioned to start reaping the rewards of its more efficient business. Grooming and baby care sales have lagged in recent quarters, but Lash says strong performance in beauty products has helped pick up the slack. Procter & Gamble has a 3.4 percent dividend yield and a five-year average dividend growth rate of 5.9 percent. Morningstar has an “undervalued” rating and $97 fair value estimate for PG stock.
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7 Value Stocks With Growing Dividends originally appeared on usnews.com
