2 Undervalued Stocks That Just Raised Dividends

Each month, we screen for undervalued stocks that have recently increased their dividend payouts. This past month, two companies on our list made meaningful increases to their dividends.

Dividend investing comes in various forms. Investors can look for stocks with the highest yields, those with a history of stable payouts and strong finances, or those raising their dividends. We filtered US stocks in the Morningstar Dividend Composite Index for those covered by Morningstar analysts that have increased their dividends—a sign of management’s confidence in the company’s finances.

Here are two undervalued stocks that increased their dividends by 0.5% or more in July:

• Albemarle ALB
• Clorox CLX

Screening for Undervalued Stocks That Raised Dividends

We started with a list of holdings in the Dividend Composite Index covered by Morningstar analysts that declared a dividend payment in July. We tracked changes from previous payouts and filtered for companies that saw an increase of 0.5% or more to capture the most substantial changes. Stocks with dividend yields under 1.12% (the average yield of stocks in the Morningstar US Total Market Index) were excluded.

Lastly, we picked companies rated 4 or 5 stars by Morningstar analysts, meaning they are considered undervalued. These stocks offer investors the potential to benefit from increased dividend yields and the possibility that their investment values will grow.

Two companies made it through the screen. A full list of stocks covered by Morningstar that raised dividends by 0.5% or more in July can be found at the end of this article.

Albemarle

• Morningstar Rating
  : ★★★★
• Fair Value Estimate
  : $200.00
• Morningstar Uncertainty Rating
  : Very High
• Morningstar Economic Moat Rating
  : Narrow

We view distributions as appropriate. The current dividend policy is easily manageable as dividends have averaged just 17% of net income over the past five years. We believe this is appropriate, as lithium prices are likely to remain volatile, and a lower payout ratio increases the likelihood that Albemarle will be able to continue growing the dividend.

Clorox

• Morningstar Rating
  : ★★★★★
• Fair Value Estimate
  : $155.00
• Morningstar Uncertainty Rating
  : Medium
• Morningstar Economic Moat Rating
  : Wide

We surmise its investment track record has been sound, particularly as it relates to capacity additions. Our conversations with management lead us to think Clorox intends to build capabilities to meet 75%-85% of its demand outlook over an extended planning cycle—a wise approach, in our view, that should ensure the firm maintains the resources to reinvest in its operations and boost shareholder returns through dividends and share buybacks. We forecast that dividends will grow at a mid-single-digit rate on average through fiscal 2035, while repurchasing a low-single-digit percentage of shares outstanding annually. We view repurchases as prudent when shares trade at a discount to our intrinsic value.