7 Undervalued Stocks with Dividends for Retirees

These income names are all trading at double-digit discounts.

Susan Dziubinski 15 February, 2022 | 4:38AM
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Industrial sector illustration

While they may not be the highest-yielding stocks around, dividend-growth stocks--those that have a history of increasing their payouts over time--have plenty going for them.

For starters, the management teams at these companies are focused on delivering a growing cash stream to their shareholders--and income is a key component of total return. That's a shareholder-friendly mindset.

Moreover, companies that consistently ratchet up their dividends are usually profitable and financially healthy--two especially valuable qualities during a market downturn.

Last, dividend-growth stocks provide some inflation protection, which is a plus for retirees in particular. "Income-focused investors receive a little 'raise' when a company increases its dividend," reminds Morningstar director of personal finance Christine Benz.

Given their multipurpose role, dividend-growth stocks are suitable for almost any type of investor. Furthermore, Morningstar's chief U.S. markets strategist Dave Sekera expects dividends to grow in line with earnings this year.

To uncover a few dividend-growth stocks to investigate further, we're turning to the top constituents in the Morningstar U.S. Dividend Growth Index.

The index focuses on companies with a history of dividend growth and an ability to maintain it. The index includes U.S.-based securities that pay qualified dividends and have increased their dividend payments over the past five years. To gauge the durability of dividend growth into the future, eligible constituents must display positive consensus earnings forecasts from the analyst community and must also pay out no more than 75% of their earnings in the form of dividends. Constituents are weighted in proportion to the total pool of dividends available to investors.

Given the index's construction rules, its largest constituents are relatively stable mega-cap companies. Below are the seven most heavily weighted in the index that are at least 10% undervalued as of this writing.

Exhibit 1

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Air Products & Chemicals Inc256.00 USD3.00Rating
Citigroup Inc64.66 USD0.25Rating
Comcast Corp Class A38.51 USD-2.58Rating
Intel Corp32.95 USD-1.26Rating
Medtronic PLC79.40 USD0.13Rating
Merck & Co Inc124.38 USD-1.04Rating
Microsoft Corp444.85 USD0.43Rating

About Author

Susan Dziubinski

Susan Dziubinski  Director of Content for Morningstar.com

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