Since the Great Recession in 2008, growth stocks have significantly outperformed value stocks. However, elevated inflation and rising interest rates have triggered a rotation out of growth stocks and into value stocks over the past year as investors seek the relative safety and stability of cash flows and profits. In addition, dividends provide a dependable source of income in an uncertain economic environment. The Morningstar analyst team rates all the stocks in its coverage universe on a scale of one to five stars.
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Here are seven value stocks to buy that have five-star Morningstar ratings and dividend yields of at least 4%.
— Verizon Communications Inc. (ticker: VZ)
— Citigroup Inc. (C)
— GSK PLC (GSK)
— Lloyds Banking Group PLC (LYG)
— Equity Residential (EQR)
— Koninklijke Philips NV (PHG)
— Healthpeak Properties Inc. (PEAK)
Verizon Communications Inc. (VZ)
Verizon Communications is the largest U.S. wireless carrier. Not only is Verizon’s 7.1% dividend the highest yield on this list, it’s also the highest dividend yield of any stock in the Dow Jones Industrial Average. Analyst Michael Hodel says Verizon’s recent growth numbers have been lackluster, but the stock is attractively valued, trading at roughly 10 times his 2023 free cash flow estimate. As Verizon completes its network projects, Hodel says the company can expand margins and increase cash flow in 2024 and beyond. Morningstar has a “buy” rating and $57 fair value estimate for VZ stock.
Citigroup Inc. (C)
Citigroup has been one of the worst-performing U.S. big bank stocks
in recent years. Shares are down 31% overall in the past five years, but they are up 6% year-to-date in 2023 through March 14. Citigroup and other bank stocks are well-positioned to grow net interest margins as interest rates rise, as long as a U.S. economic downturn doesn’t negatively impact loan growth. Analyst Eric Compton says Citigroup is still executing its complex turnaround plan, but the stock has significant valuation upside if it can control costs. Morningstar has a “buy” rating and $75 fair value estimate for C stock.
GSK PLC (GSK)
GSK is one of the world’s largest pharmaceutical companies. Analyst Damien Conover says GSK is undervalued given its outlook for steady growth. Conover says GSK’s respiratory syncytial virus (RSV) vaccine has demonstrated strong efficacy and will likely be one of the first to market. In addition, he says the company’s kidney disease drug daprodustat has major market potential. He anticipates regulatory approvals for both daprodustat and the RSV vaccine in the first half of 2023 and projects the products can potentially generate $1 billion each in annual sales. Morningstar has a “buy” rating and $50 fair value estimate for GSK stock.
Lloyds Banking Group PLC (LYG)
Lloyds Banking Group is a diversified bank and insurance provider based in the U.K. Lloyds underwent a major restructuring in 2011, and analyst Niklas Kammer says it is now a great way for investors to gain exposure to low-risk U.K. retail and commercial banking. Kammer says Lloyds benefited greatly from rising interest rates
in 2022, but net interest margins are likely to contract a bit in 2023. The U.K. mortgage market has softened, and mortgages account for roughly two-thirds of Lloyds’ customer loans. Morningstar has a “buy” rating and $3.80 fair value estimate for LYG stock.
[READ: 15 Best Dividend Stocks to Buy Now]
Equity Residential (EQR)
Equity Residential is a residential real estate investment trust
, or REIT, that specializes in apartment properties. Analyst Kevin Brown says the company’s portfolio of high-quality multifamily buildings in urban, coastal markets allows Equity Residential to increase rents without losing tenants and maintain high occupancy rates. In the fourth quarter, Equity Residential’s occupancy dropped 0.5%, but rents increased by 10.3%. Brown says Equity Residential has also created significant shareholder value by developing properties, but rising interest rates may weigh on development project returns. Morningstar has a “buy” rating and $92 fair value estimate for EQR stock.
Koninklijke Philips NV (PHG)
Koninklijke Philips is a health tech company that specializes in diagnostic imaging, image-guided therapy, patient monitoring and consumer health and home care. Analyst Javier Correonero says Philips has opportunities to expand margins by improving its operating efficiency. He says the COVID-19 pandemic has elevated demand for patient monitoring devices by demonstrating the need for remote patient management during periods of high hospital occupancy. Correonero says investors are understandably concerned with Philips’ recent product recalls and supply chain issues, but the stock is attractively valued at current levels. Morningstar has a “buy” rating and $25 fair value estimate for PHG stock.
Healthpeak Properties Inc. (PEAK)
Healthpeak Properties is a health care REIT that invests in life science and medical office properties and other health care facilities throughout the U.S. For value investors looking to buy the dip, Healthpeak shares are down 26.9% in the past year and 6.2% so far in 2023. Brown says Healthpeak reported impressive internal growth in the fourth quarter, and same-store net operating income will likely return to historical levels in 2023. In the long-term, Brown says Healthpeak will benefit from a growing elderly population. Morningstar has a “buy” rating and $35 fair value estimate for PEAK stock.
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7 Value Stocks to Buy With High Dividend Yields originally appeared on usnews.com
Update 03/15/23: This story was previously published at an earlier date and has been updated with new information.
