Hi. I’m David Harrell with Morningstar Investment Management. In this monthly video series, we take a look at the dividend prospects of three stocks that are popular with income investors.
3 Dividend Stocks for September 2022
These companies with Morningstar Economic Moat Ratings of wide and narrow are popular with income investors. Data as of Sept. 1, 2022.
First up this month is Edison International, a fully regulated utility in California. Currently yielding around 4%, Edison provides one of the better yields in the utilities sector. Past dividend growth has been solid, at 6.3% annualized over the past five years, despite financial pressure from wildfires. Ongoing dividend growth is likely to be more modest, however, due to the issuance of new equity that will dilute earnings per share growth. But management is supportive of continued dividend increases: During an earnings call earlier this year, the CFO noted she was proud of an 18-year history of consecutive annual increases and that she looked forward to building on that history.
Next up is Genuine Parts, a narrow-moat seller of automotive parts. Now this company’s commitment to annual dividend hikes is beyond question, as this year’s raise was the 66th consecutive annual increase. The company even provided a modest raise in 2021 despite a loss in the previous fiscal year. Morningstar analysts note that management targets a dividend payout ratio between 50% and 55% of prior-year earnings, so future increases should approximate trailing earnings growth. But Genuine Parts also provides a good example of how consistent dividend growth doesn’t necessarily lead to high yields, if the rate of dividend increases doesn’t keep pace with appreciation of the share price. The stock’s current yield is 2.3%, down from 2.6% just two months ago.
Finally, there’s Philip Morris International, which sells tobacco products outside of the U.S. It currently yields around 5%. The company is looking to acquire Swedish Match, a Stockholm-based producer of nicotine and tobacco products, and Morningstar analysts note that there could be strategic and financial benefits from the access to the U.S. market that that the company would gain from this acquisition. An increase in cash flow would be welcome news for future dividend increases, as the firm’s payout ratio has remained above 90% in recent years and will likely hit that level again this year, based on consensus earnings estimates. And with all of its revenue generated outside of the U.S., Philip Morris is also facing a currency headwind due to the strong U.S. dollar.
I’m David Harrell with Morningstar Investment Management. Thanks for watching and see you next month.
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