To The Moon

1. Comcast CMCSA
2. Merck MRK
3. United Parcel Service UPS

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Comcast initiated its dividend in 2008 and has been extremely consistent when increasing it in recent years, boosting the quarterly payout by $0.02 a year for the past six years. This does mean, however, that the percentage rate of the increase is declining each year.

Morningstar analysts note that the current annual dividend rate of $1.24 per share requires about $5 billion annually, which is less than 40% of free cash flow, and they believe this provides ample strategic flexibility for Comcast. Their projection for dividend growth anticipates a continuation of the pattern of $0.02 raises in the quarterly rate, which would bring the annual dividend to $1.48 by 2028. While Comcast is planning to spin off some of its cable networks, that seems unlikely to threaten the dividend, as those assets only represent a small portion of the firm’s earnings. The stock now yields 3.3%, up from the 2.7% it yielded a year ago, due mostly to the decline in its share price over that period. The stock currently trades at a 30% discount to its Morningstar fair value estimate, placing it in 4-star territory.

Drug manufacturer Merck recently declared a 5.2% increase in its quarterly dividend rate for 2025, boosting its forward yield to 3.2%. Merck has raised its dividend by 8.3% a year on an annualized basis over the past five years. Morningstar analysts expect the annual dividend, which is currently $3.24 a share, to rise to $3.96 pers share by the end of 2028. In assessing the company’s financial strength, they noted, “We continue to expect steady future dividends, supported by a payout ratio of close to 50% relative to adjusted earnings per share.” The stock now trades at a discount of approximately 15% to its fair value estimate.

United Parcel Service has increased its dividend at an impressive annualized rate of 12.2% over the past five years, though that number is driven largely by 2022’s 49% raise. That was followed by a 6.6% raise for 2023, and a meager 0.6% raise for 2024. As part of their analysis of UPS’ financial strength, Morningstar analysts are confident in the company’s ability to fund its dividend, noting that outside of major economic disruption, they expect UPS’ historical pattern of dividend payments to be secure.

The stock currently yields 5.2%, which is well above the 3.4% it has averaged over the past five years, as the share price has trended downward since early 2022. Morningstar analysts expect the current annual dividend of $6.52 a share to increase to $7.24 a share by 2028. Like Merck, UPS is trading at around a 15% discount to fair value, putting it in 4-star territory.

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