3 Dividend Stocks for December 2024 [Video]

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These stocks all trade at discounts to their Morningstar fair value estimates.

00:00 Introduction
00:10 British American Tobacco BTI
01:07 ConocoPhillips COP
01:42 CVS Health CVS

Hi. I’m David Harrell, editor of the Morningstar DividendInvestor newsletter. In this monthly series, we take a look at the dividend prospects of three stocks that are popular with income investors.

British American Tobacco, the world’s second-largest tobacco company by volume, pays a fixed quarterly dividend of 58.88 pence to its ADR shareholders. Based on current exchange rates, that translates into an 8.1% yield. In base currency, the firm provided a 2% dividend increase for 2024, and management appears committed to future increases. In assessing its financial strength, Morningstar analysts said we forecast the company could increase the dividend about 5% per year, repurchase 2 billion pounds of shares annually, and still keep its net leverage ratio within the target range over the course of our explicit forecast. The stock now trades at around a 25% discount to its fair value estimate. Please note that due to a tax treaty with the UK, US investors generally aren’t subject to tax withholding for dividends paid by UK firms, but there may be fees associated with each dividend payment. Please consult your tax advisor for more details.

ConocoPhillips currently has a relative modest yield of 2.9%, but it has grown its dividend at a whopping 27.5% annualized over the past five years. In recent years, Conoco has paid a variable component in addition to its regular dividend, but in 2024, that variable component was incorporated into the base quarterly dividend. In the Aug. 1 earnings call, Conoco’s CEO said, “We are confident that we can grow this dividend at a top-quartile rate relative to the S&P 500.” The stock currently trades at a modest discount to its $114 fair value estimate.

CVS Health currently yields 4.5%, with 3.9% annualized dividend growth over the past five years. However, Morningstar analysts have noted a pattern: Following acquisitions, the company either forgoes or provides modest dividend increases while refraining from buybacks, seeking to reduce debt. They said we would not be surprised to see CVS continue in that pattern of leverage-increasing acquisitions, deleveraging by constraining other capital-allocation activities, hitting its leverage target, and then starting all over again. They forecast modest dividend growth over the next several years, with the annual dividend, which is currently $2.66 a share, rising to $3.01 per share by 2028. The stock now trades at a discount of more than 35% to its Morningstar fair value estimate.

I’m David Harrell from Morningstar DividendInvestor. Thanks for watching, and we’ll see you next month.

What to watch from Morningstar.

3 Dividend Stocks for November 2024 https://youtu.be/ooZ-dbMNUP8?si=-mi8gZM08mCFm-1X

3 Dividend Stocks for October 2024 https://youtu.be/XGGS8gd1hKE?si=Y5MXf8kHNrX6nAv0

Why These 2 Dividend Aristocrats Look Like Buys Today https://youtu.be/9EUNDdUrg38?si=WoPZA1ZAa64Iwsj4

3 Dividend Stocks for September 2024 https://youtu.be/ltH1k4xv0qQ?si=nudIWX-lo7q-yjbg

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David Harrell https://www.morningstar.com/authors/212/david-harrell

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