13 Undervalued Stocks That Just Raised Dividends (2024)

Dividend stocks have been left in the dust by the growth-stock-powered rally over the last year. But that poor performance is providing opportunities for long-term investors to find undervalued dividend payers. That includes stocks that have been raising their payouts.

Dividend investing comes in various forms. Investors can look for stocks that offer the highest yields, names with a history of stable dividend payouts and strong finances, or companies that are raising dividends. For this article, we screened for stocks that have increased their quarterly dividends, which can be a sign of a company’s confidence in its future finances.

We combined this screen with one for stocks that are trading below their Morningstar fair value estimates, meaning they have attractive prices for long-term investors. These stocks offer investors the potential to benefit from both increased dividend yields and the possibility that their investment values will grow.

Here are the 13 stocks that made it through our screen. A longer list of undervalued stocks with dividend increases is available at the bottom of this article.

1. NextEra Energy NEE
2. PPL PPL
3. Equity Lifestyle Properties ELS
4. Interpublic Group of Companies IPG
5. Ameren AEE
6. Essex Property Trust ESS
7. Quest Diagnostics DGX
8. Exelon EXC
9. DuPont de Nemours DD
10. Xcel Energy XEL
11. Public Service Enterprise Group PEG
12. Macy’s M
13. Baker Hughes BKR

How We Screened for Undervalued Stocks That Raised Dividends

We started with the full list of US-based companies covered by Morningstar analysts and looked for names that pay investors a quarterly dividend. We then tracked changes from previous payouts in dividends announced in February. From there, we filtered for companies that saw a dividend increase of 5% or more to capture the most substantial changes. Stocks with dividend yields under 2% were then excluded. After that, we picked companies considered undervalued by Morningstar analysts, meaning they are rated 4 or 5 stars.

Here are more details on the 13 stocks that made the cut, along with commentary from Morningstar’s equity analysts.

NextEra Energy

• Sector: Utilities
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $74.00
• Price/Fair Value Ratio: 0.75
• Forward Dividend Yield: 3.73%

“NextEra’s dividend is primarily supported by regulated utility earnings and its contracted renewable energy portfolio. We expect 10% dividend increases through 2027 with the payout ratio remaining around 65%.”

More of the outlook for NextEra stock from Andrew Bischof can be found here.

PPL

• Sector: Utilities
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $29.00
• Price/Fair Value Ratio: 0.90
• Forward Dividend Yield: 3.94%

“The company increased its quarterly dividend to $0.24 per share, or $0.96 annualized, up 7% from its 2022 dividend. The company plans to maintain a 60%-65% payout target. We expect the board will increase the dividend in line with our earnings growth estimate.”

Take a deeper dive into PPL’s outlook from Andrew Bischof.

Equity Lifestyle Properties

• Sector: Real Estate
• Morningstar Economic Moat Rating: None
• Fair Value Estimate: $78.00
• Price/Fair Value Ratio: 0.86
• Forward Dividend Yield: 2.85%

“As a REIT, Equity Lifestyle is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by its cash flow from operating activities, providing it plenty of flexibility to make capital allocation and investment decisions. We expect the company’s credit rating to remain stable through steady rental income growth in its existing portfolio and the stabilization of the company’s current developments, which should allow it to continue to access the debt market in combination with equity issuance and asset dispositions to fund its debt maturities, acquisitions, and new development activity.”

The rest of Kevin Brown’s outlook on Equity Lifestyle can be found here.

Interpublic Group of Companies

• Sector: Communication Services
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $39.00
• Price/Fair Value Ratio: 0.80
• Forward Dividend Yield: 4.23%

“Total cash allocated toward acquisitions, dividends, and share buybacks in the past two years has exceeded the free cash flow generated during that time, mainly due to the significant increase in share repurchases in 2022, which we expect to decline in 2023 and beyond. The firm’s dividend payout as a percentage of net income has averaged 69.5% during the last three years, which included a very high payout ratio during the COVID-19 pandemic in 2020.”

Click for more on IPG’s outlook.

Ameren

• Sector: Utilities
• Morningstar Economic Moat Rating: None
• Fair Value Estimate: $78.00
• Price/Fair Value Ratio: 0.91
• Forward Dividend Yield: 3.76%

“We expect future dividend growth to be in line with earnings growth. Ameren has tended to be at the lower end of management’s 55%-70% dividend payout target. The current payout ratio is at the low end of this range, which we think is appropriate, given the long runway of growth opportunities available to Ameren.”

Andrew Bischof has more on Ameren’s stock here.

Essex Property Trust

• Sector: Real Estate
• Morningstar Economic Moat Rating: None
• Fair Value Estimate: $290.00
• Price/Fair Value Ratio: 0.81
• Forward Dividend Yield: 4.18%

“As a REIT, Essex is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cash flow from operating activities, providing Essex plenty of flexibility to make capital allocation and investment decisions. We expect the company’s credit rating to remain stable through steady rental income growth in its existing portfolio and the stabilization of the company’s current developments, which should allow the company to continue to access the debt market in combination with equity issuance and asset dispositions to fund its debt maturities, acquisitions, and new development activity.”

Dive deeper into Essex Property stock with research from Kevin Brown.

Quest Diagnostics

• Sector: Healthcare
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $143.00
• Price/Fair Value Ratio: 0.87
• Forward Dividend Yield: 2.41%

“Even with a rollup strategy, Quest maintains a manageable balance sheet. M&A activity contributed to a slight rise in leverage in early 2014 and another tick upward in 2019. However, historically the firm has deleveraged by repaying some debt and expanding profits following heavy acquisition activity. In 2023, long-term debt stood at just under $4 billion, or an estimated 2.1 times EBITDA, slightly lower than the 2.5 times that management generally aims for. The firm’s debt obligations include senior notes next due in 2024 ($300 million) and 2025 ($566 million). Overall, we expect Quest should be able to generate close to over $1 billion in annual free cash flow on average once business fully normalizes in 2024, and we don’t think it should have any problem meeting its obligations.”

Debbie Wang has more on the outlook for DGX stock.

Exelon

• Sector: Utilities
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $39.00
• Price/Fair Value Ratio: 0.91
• Forward Dividend Yield: 4.28%

“With nearly 5 times interest coverage, Exelon’s financial health is sound for a regulated utility, particularly given its stable, low-risk business model. We expect total debt/EBITDA to remain around 5.5 times. Exelon targets a 60% dividend payout ratio, which we think is reasonable. We expect dividend growth in line with our 5.5% annual earnings growth forecast through 2027.”

Here’s more of the outlook for Exelon stock from Andrew Bischof.

DuPont de Nemours

• Sector: Basic Materials
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $85.00
• Price/Fair Value Ratio: 0.82
• Forward Dividend Yield: 2.19%

“DuPont is in solid financial condition. Management targets a 35%-45% payout ratio for dividends. We forecast DuPont to generate significant free cash flow that will allow the firm to meet all of its financial obligations, with remaining cash flow to support annual dividend growth and share repurchases.”

Investors can find more of Seth Goldstein’s take on DuPont stock here.

Xcel Energy

• Sector: Utilities
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $61.00
• Price/Fair Value Ratio: 0.81
• Forward Dividend Yield: 4.42%

“Xcel Energy has a strong financial profile. The board has accelerated dividend growth in the past few years, raising the dividend by 5.7% to $2.20 per share annualized in 2024. We expect management to stick to its 60%-70% payout target while Xcel goes through its heavy capital investment years. Still, we think the dividend can grow at least 6% annually based on our earnings growth forecast.”

Travis Miller has a deeper dive into Xcel stock here.

Public Service Enterprise Group

• Sector: Utilities
• Morningstar Economic Moat Rating: Narrow
• Fair Value Estimate: $65.00
• Price/Fair Value Ratio: 0.96
• Forward Dividend Yield: 3.86%

“Public Service Enterprise Group has operated with a more conservative capital structure than other utilities for many years, in part due to financial risk at its nonregulated operations. The board of directors raised the dividend by $0.12 per share annualized for 2022 and 2023 after seven years of only $0.08 increases. With these step-ups, the payout ratio is now near 60%, in line with the industry average. We expect management to maintain this payout ratio, increasing the dividend in line with earnings for the foreseeable future.”

Read more about the outlook for Public Service Enterprise stock from Travis Miller.

Macy’s

• Sector: Consumer Cyclical
• Morningstar Economic Moat Rating: None
• Fair Value Estimate: $25.00
• Price/Fair Value Ratio: 0.72
• Forward Dividend Yield: 3.86%

“Macy’s took steps to conserve cash during the pandemic. It suspended its dividend and share repurchases and cut its capital expenditures to $466 million in 2020 from $1.16 billion in 2019. As its results improved, it reinstated a quarterly dividend (now $0.1654 per share) and authorized a new $2 billion share-repurchase plan. Despite new investments in Backstage, e-commerce, and its supply chain under its Polaris plan, we forecast Macy’s will generate about $730 million in average annual free cash flow to equity over the next decade and return much of it as dividends and stock buybacks. In the next 10 years, we anticipate annual dividend payments of about $240 million (24% average yearly payout ratio) and average annual repurchases of about $260 million.”

For more on the outlook for Macy’s from David Swartz, click here.

Baker Hughes

• Sector: Energy
• Morningstar Economic Moat Rating: None
• Fair Value Estimate: $39.00
• Price/Fair Value Ratio: 0.77
• Forward Dividend Yield: 2.80%

“Baker Hughes is in solid financial health. Baker Hughes represents one of the ‘big three’ oilfield service firms. It maintains a sizable share in several end markets, including specialty chemicals and directional drilling, and it’s maintained the lead in specialty chemicals since at least 2008. The majority of Baker Hughes’ revenue comes from international (non-US) markets, which tend to be less volatile, but challenges associated with the inherent cyclicality of oil and gas markets are ever-present. We expect demand for oil and gas will remain high over the next few years, presenting ample growth opportunities in Baker Hughes’ core market.”

Joshua Aguilar has more on the outlook for Baker Hughes stock here.

Dividend Stock Investing: More Ideas to Consider

• Use the Morningstar Investor Screener tool to find the best dividend stocks according to your specific criteria. You can search for stocks based on their dividend yields, valuation measures like price/earnings ratios, and more.
• Use Morningstar Investor to build a watchlist of the best dividend stocks and easily follow those stocks’ valuations, ratings, and dividend yields.
• Watch our dividend stock video series, hosted by David Harrell, for ideas to consider.
• When it comes to buying stocks, it’s more than just dividends. Read here how valuations and competitive advantages—known as economic moats—matter when it comes to a stock’s potential for outperformance.