3 Cheap U.S. Dividend Stocks to Buy Yielding 4% or More

These high-dividend stocks look undervalued to us.

Dave Sekera, CFA 11 June, 2024 | 4:45AM
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For investors looking for a relatively high dividend yield, that doesn’t mean you have to give up looking for stocks that trade at a discount to their intrinsic valuation.

3 Cheap Dividend Stocks to Buy Yielding 4% or More

Verizon Communications VZ
Kinder Morgan KMI
WEC Energy WEC

 

 

 

Verizon Communications VZ

Analyst: Michael Hodel, CFA

Source: Morningstar Direct, as of June 4th, 2024


First up, Verizon Communications is rated 4 stars and its dividend provides investors with an almost 6.7% yield. We rate the company with a narrow economic moat based on its cost advantages and the industry’s efficient scale characteristics.

Following consolidation within the industry over the past several years, we expect that wireless carriers will begin to act more like an oligopoly. What this means is that they will compete less on price, which in turn will allow Verizon to expand its operating margin and profitability. In fact, we think we are already seeing the initial stages of this transformation in Verizon’s most recent earnings report.

Verizon’s forward P/E ratio is just under 9 times our 2024 earnings forecast, and we forecast Verizon’s earnings will grow 6.5% on average over the next three years. With a dividend payout ratio below 60%, we don’t foresee any difficulty with Verizon being able to maintain its dividend.

 

Kinder Morgan KMI

Analyst: Stephen Ellis

Source: Morningstar Direct, as of June 4th, 2024

Another example is Kinder Morgan. That’s a master limited partnership with 82,000 miles of natural gas and oil pipelines. Based on the inherent efficient scale and locations of their pipelines, we rate the company with a narrow economic moat.

The stock is rated 4 stars and trades at a little over a 10% discount to our intrinsic valuation, and its dividend yield is about 6%.

Approximately 64% of the company’s revenue is tied to natural gas, 26% to refined products, and 10% to carbon dioxide. In our longer-term forecast, we project the demand for oil and refined products will rise through the end of this decade and then only slowly start to decline thereafter as electric vehicles become a larger percentage of cars on the road. Offsetting this long-term decline, we foresee an increase in demand for natural gas to power greater electricity usage as an increase in artificial intelligence requires many times more electricity than traditional computing.

Kinder Morgan’s forward P/E ratio is approximately 14 times our 2024 earnings forecast, and we forecast its earnings will grow about 10% on average over the next five years.

 

WEC Energy Group WEC

Analyst: Andrew Bischof, CFA

Source: Morningstar Direct, as of June 4th, 2024

And lastly is WEC Energy, a utility company that provides regulated electricity service in Wisconsin and Illinois. And it also provides regulated natural gas service in Wisconsin, Illinois, Michigan, and Minnesota.

Its stock is rated 4 stars and trades at approximately a 16% discount to our intrinsic valuation. Currently, its dividend yield is just over 4%. Like most regulated utilities, we rate WEC with a narrow economic moat.

In our view, we think WEC combines best-in-class management with above-average growth opportunities and is supported by a constructive regulatory environment in Wisconsin. We also think WEC is well positioned to capitalize on the expansion of data centers to support the growth in artificial intelligence computing.

Looking forward, we expect WEC Energy will achieve the high end of their 6.5% to 7.0% annual earnings growth guidance range through 2028.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Kinder Morgan Inc Class P19.67 USD0.41Rating
Verizon Communications Inc39.46 USD-0.53Rating
WEC Energy Group Inc78.37 USD-0.62Rating

About Author

Dave Sekera, CFA  Dave Sekera, CFA, is chief U.S. market strategist for Morningstar.

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