Morningstar Dividend Analysis: Altria, TC Energy, Vodafone

David Harrell, editor of a Morningstar dividend newsletter, wrote an assessment of dividend prospects for the stocks.

Dividend stocks can provide a stable to rising share price and stable to rising income, which is most useful in times of market volatility.

So now might be a time to consider buying them.

David Harrell, editor of the Morningstar DividendInvestor newsletter, authored an analysis of the dividend prospects of three popular stocks for income investors.

Altria  (MO) - Get Free Report, the giant cigarette maker.

Morningstar moat (durable competitive advantage) rating: wide. Morningstar fair value estimate: $52. Recent quote: $46.35. Forward dividend: 8.15%.

Morningstar analysts “believe the company can increase the price of its products, allowing it to continue to increase revenue, earnings, and the dividend,” Harrell said.

Meanwhile, “the payout ratio [dividends-per-share divided by earnings-per-share] was 85% last year, and Morningstar analysts expect a similar ratio for 2023,” Harrell said.

“They note that this level of payout leaves little room for maneuvering in the event of another liquidity crisis, black swan regulatory or litigation event.”

But, “they believe that the firm is committed to its dividend and that a cut would only occur in the most extreme of circumstances,” Harrell said. “In such a situation, they note that Altria’s 10% interest in Anheuser-Busch InBev BUD could be monetized.”

Further, “Altria’s management recently said it would target annual dividend growth in the mid-single-digits,” Harrell said.

TC Energy  (TRP) - Get Free Report, an oil and gas producer.

Morningstar moat rating: narrow. Morningstar fair value estimate: $47. Recent quote: $41.60. Dividend: 6.59%.

TC operates assets in Canada and the U.S. It pays a fixed quarterly dividend in Canadian dollars, and the amount received by U.S. shareholders varies each quarter based on currency fluctuation.

The dividend currently translates to an annual payout of around $2.75 and a 7% yield for U.S. shareholders.

TC Energy has increased its dividend in Canadian dollars at an annualized rate of 7.6% over the past five years, but management’s current stated goal is 3% to 5% a year, Harrell said.

“Morningstar analysts expect 4% dividend growth for 2023, and they believe that 3% to 4% growth going forward is easily supportable.”

Vodafone  (VOD) - Get Free Report the U.K. telecommunications giant.

Morningstar moat rating: none. Morningstar fair value estimate: $15. Recent quote: $11.25. Dividend 8.64%.

Vodafone has a presence in more than 20 countries, with its most important markets being Germany, Spain, Italy, and the U.K., Harrell said.

“Like many European companies, Vodafone pays a semi-annual dividend that will vary for U.S. investors based on exchange rates. The recent strength of the dollar caused the U.S. payout to decline slightly in 2022,” he said. But the dollar has fallen back this year.

“While Vodafone’s yield looks quite attractive at more than 8%, the company cut its dividend in 2019, and the current dividend rate appears somewhat less than rock-solid….,” Harrell said. “If fundamentals keep deteriorating, a dividend cut could be feasible in the next couple of years.”

The author of this story owns shares of Vodafone.