Summary
- I rank a selection of undervalued dividend growth stocks in Dividend Radar and present the top ten stocks for consideration.
- I use two valuation screens, one based on my fair value estimate, and another comparing each stock’s forward dividend yield with its 5-year average dividend yield.
- To rank stocks, I do a quality assessment and sort candidates by quality scores, breaking ties with additional metrics.
- This month, I’m presenting the top ten undervalued dividend growth stocks with a 5-year yield-on-cost of at least 5%.
In this monthly series, I present my top ten list of Undervalued Dividend Growth Stocks.
My watchlist of dividend growth [DG] stocks is Dividend Radar, a weekly, automatically generated spreadsheet of DG stocks with five-year or longer dividend increase streaks. With over 700 members, Dividend Radar contains a wealth of information, but we need a way to screen the stocks to select the most relevant candidates. That’s where this article series comes in.
To determine if DG stocks are undervalued, I use a survey approach to estimate fair value [FV] by referencing fair value estimates and price targets from several online sources, including Morningstar, Portfolio Insight, and Finbox. Additionally, I estimate the fair value using each stock’s 5-year average dividend yield, based on data from Portfolio Insight. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.
I assess the quality of DG stocks using a quality scoring system that employs six quality indicators from independent sources. Each quality indicator is assigned 0–5 points, with a maximum score of 30. I rank stocks by sorting them in descending order by quality score and breaking any ties with additional metrics.
This month, I’m presentingthetop ten undervalued DG stocks with a 5-year yield-on-cost of at least 5%.
Since this is a monthly article series with an established format, certain parts and descriptions of methodology are repeated. Regular readers can safely skip the template introduction and the Valuation and Ranking section.
Valuation and Ranking
The latest Dividend Radar (dated August 2, 2025) contains 720 stocks with dividend increase streaks of at least five years.
Valuation Screens
I use the following valuation screens:
- Stock price < FV estimate (488 stocks qualify)
- Forward dividend yield > 5-year average dividend yield (439 stocks qualify)
When combining these valuation screens, only 411 stocks qualify.
Ranking Candidates
To rank candidates, I sort them in descending order by quality scores and use the following tie-breaking metrics:
- Simply Safe Dividends Dividend Safety Scores
- S&P Global Credit Ratings
- Forward Dividend Yield
Each stock’s Rank is shown in the tables below.
This Month’s Feature Screen
This month, I decided to focus on stocks with strong income prospects.
Strong Income Prospects
The 5-year yield on cost [5-YOC] of a stock is the expected yield on cost after five years of investment.
The 5-year Yield on Cost [5-YOC] is an income-oriented metric that indicates your yield on cost after buying and holding a stock for five years, assuming the dividend grows according to my projected dividend growth rate [Proj. DGR].
To calculate the 5-YOC is easy:
- 5-YOC = Fwd Yield × (1 + Proj. DGR)^5
Where:
- Fwd Yield is the forward dividend yield for the most recent share price.
Here is this month’s income prospect screen:
- 5-YOC ≥ 5% (148 stocks qualify)
Combined Screens
When combining the valuation and feature screens, only 129 DG stocks qualify.
Top 10 Undervalued Dividend Growth Stocks for August
Here are this month’s top ten undervalued DG stocks in rank order:
Top 10 Undervalued Dividend Growth Stocks for August 2025
I own the three highlighted stocks in my DivGro portfolio.
The following company descriptions are my summaries of company descriptions sourced from Finviz.
1. Chevron (CVX
Founded in 1984 and headquartered in Houston, Texas, CVX is a multinational energy corporation involved in all aspects of the oil and gas industry, including exploration and production; refining, marketing, and transport; chemical manufacturing and sales; and power generation. CVX operates through two segments, Upstream and Downstream.
2. Merck (MRK
Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global healthcare company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug providers, managed health care providers, hospitals, government agencies, physicians, veterinarians, and animal producers.
3. PepsiCo (PEP
PEP is a global beverage and food company founded in 1898. It distributes beverages under well-known brands such as Pepsi, Gatorade, Mountain Dew, 7UP, and Tropicana and food and snacks under brands such as Quaker, Lay’s, Doritos, Cheetos, and Ruffles. The company is headquartered in Purchase, New York.
4. EOG Resources (EOG
EOG and its subsidiaries explore, develop, produce, and market crude oil, natural gas liquids, and natural gas in producing basins in the United States, the Republic of Trinidad and Tobago, and internationally. The company was formerly known as Enron Oil & Gas Company. EOG was incorporated in 1985 and is headquartered in Houston, Texas.
5. UnitedHealth (UNH
UNH is a diversified healthcare company. Its UnitedHealthcare business offers consumer-oriented health benefit plans and services in the United States. Its Optum business delivers care aided by technology and data, empowering people, partners, and providers with the guidance and tools needed to achieve better health outcomes. UNH was founded in 1977 and is headquartered in Minnetonka, Minnesota.
6. Comcast (CMCSA
Founded in 1963 and headquartered in Philadelphia, Pennsylvania, CMCSA is a global media and technology company. The company operates through Residential Connectivity and Platforms, Business Services Connectivity, Media, Studios, and Theme Parks segments. CMCSA delivers broadband, wireless, and video connectivity; creates, distributes, and streams entertainment, sports, and news; and operates theme parks and resorts.
7. Verizon Communications (VZ
VZ provides communications, information and entertainment products and services to consumers, businesses, and governmental agencies worldwide. Formerly known as Bell Atlantic Corporation, the company changed its name to Verizon Communications Inc. in June 2000. VZ was founded in 1983 and is based in New York, New York.
8. Mid-America Apartment Communities (MAA
Founded in 1977 and based in Memphis, Tennessee, MAA is a self-administered and self-managed REIT that focuses on the acquisition, selective development, redevelopment, and management of multifamily homes throughout the southeastern and southwestern regions of the United States. MAA owns more than 100,000 operating apartment homes in the United States.
9. Target (TGT
Founded in 1902 and headquartered in Minneapolis, Minnesota, TGT sells a range of general merchandise and discount food products in about 1,800 stores in the United States. The company offers everyday essentials and fashionable, differentiated merchandise at discount prices. TGT operates as a single business segment with a fully integrated online business, Target.com.
10. Realty Income (O
Known as The Monthly Dividend Company®, O is an equity REIT that invests in commercial real estate markets in the United States and internationally. The company earns income from more than 5,000 properties under long-term lease agreements with commercial tenants. O was founded in 1969 and is
Please note that the top ten undervalued DG stocks are candidates for further analysis, not recommendations.
Key Metrics and Fair Value Estimates
Below, I present key metrics of interest to DG investors, along with quality indicators and fair value estimates:
| Yrs: years of consecutive dividend increasesQual: quality score out of 30Fwd Yield: forward dividend yield for a recent share Price5-Avg Yield: 5-year average dividend yield5-DGR: 5-year compound annual growth rate of the dividendProj DGR: my projected dividend growth rate5-YOC: the projected yield on cost after five years of investmentACN: Adjusted Chowder Number 5-TTR: 5-year compound trailing total returnFV Est: my fair value estimate–Disc +Prem: discount or premium of the recent share Price to my FV EstPrice: recent share price |
| Color-codingTicker: highlighted for stocks I own in my DivGro portfolioQual: for color scheme, see DVK Quality Snapshots Fwd Yield: green if Fwd Yield ≥ 5-Avg Yield5-YOC: green if 5-YOC ≥ 4.0%, yellow if 5-YOC ≥ 2.5% (but less than 4.0%), and red if 5-YOC < 2.5%ACN: colored based on the likelihood of delivering annualized returns of 8%, according to the Chowder Rule: green means likely, yellow means less likely, and red means unlikely |
Here are the Sector and Super Sector designations of each candidate:
| Rank | Company (Ticker) | Sector | Supersector |
| 1 | Chevron (CVX) | Energy | Sensitive |
| 2 | Merck (MRK) | Health Care | Defensive |
| 3 | PepsiCo (PEP) | Consumer Staples | Defensive |
| 4 | EOG Resources (EOG) | Energy | Sensitive |
| 5 | UnitedHealth (UNH) | Health Care | Defensive |
| 6 | Comcast (CMCSA) | Communication Services | Sensitive |
| 7 | Verizon Communications (VZ) | Communication Services | Sensitive |
| 8 | Mid-America Apartment Communities (MAA) | Real Estate | Cyclical |
| 9 | Target (TGT) | Consumer Staples | Defensive |
| 10 | Realty Income (O) | Real Estate | Cyclical |
Commentary
Following is a comparative analysis of an equal-weighted portfolio of this month’s ten top-ranked undervalued DG stocks, courtesy of Finbox.com:
The portfolio yields 4.4% and has an FV upside of 18.2%. It has underperformed the S&P 500 (as represented by the SPDR S&P 500 Trust ETF (SPY)) over the last five years, with returns of 15% (excluding dividends) versus SPY’s 82%.
CVX (6.5%), EOG (6.4%), and VZ (6.3%) have the highest 5-year yield-on-cost percentages.
VZ (6.28%), O (5.62%),and CVX (4.41%) have the highest forward yields, while EOG (12.9%) and UNH (12.1%) have the highest projected dividend growth rates.
I own three of this month’s top ten stocks: CVX, UNH, and O.
Based on how I calculate target weights for my portfolio, these positions are essentially full-sized positions:
When considering new positions for my portfolio, I look at the following criteria:
- Stock Quality: Quality scores ≥ 21 (Exceptional, Excellent, or Fine ratings)
- Dividend Quality: A+ or A Dividend Quality Grades
- Growth Outlook: Qualifying ACNs (likely to deliver annualized returns of 8%)
- Income Outlook: 5-year YoC ≥ 4.00% (likely to have high YOC after 5 years of ownership)
Of the stocks I don’t own, only MAA passes these criteria, and I’ll consider opening a position following further due diligence analysis.
Concluding Remarks
In this article, I ranked undervalued Dividend Radar stocks with a 5-year yield-on-cost of at least 5% and presented the ten top-ranked stocks for consideration.
Depending on your interest, I would recommend looking at these stocks first:
- Income Investors: VZ, O,and CVX
- Value Investors: CMCSA, MRK, and UNH
- Growth-Focused Investors: EOG and UNH
I’ll be researching MAA as a candidate for my DivGro portfolio.
As always, I encourage readers to conduct their own due diligence before purchasing any stocks I cover.
Thank you for reading, and take care, everyone!
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