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Two Undervalued Dividend Champions to Buy and Hold Forever

Marcus LeeSunday, May 11, 2025 7:09 pm ET

70min read

KHC --

Amid market volatility and shifting economic landscapes, dividend growth stocks remain a cornerstone of long-term investing. For 2025, two companies stand out for their combination of affordable valuations, sustainable dividend yields, and proven track records of growth: Kraft Heinz (KHC) and Verizon Communications (VZ). Both offer compelling entry points for investors seeking steady income and capital appreciation. Let’s dive into why these stocks deserve a permanent place in your portfolio.

1. Kraft Heinz (KHC): A Value Play with a 5.25% Dividend Yield

Kraft Heinz is a Morningstar 5-star stock trading at a 45% discount to its intrinsic value, making it one of the most undervalued dividend stocks today. With a 5.25% yield, it offers a rare blend of income and growth potential.

Why It’s a Buy:
- Strong Brands, Steady Cash Flow: The company’s portfolio includes household names like Heinz ketchup, Kraft macaroni, and Planters. These brands generate consistent cash flow, even in recessions.
- Valuation Discount: At a 45% discount to its $80 fair value estimate (as of May 2025), KHC is priced for pessimism. This discount reflects concerns about the processed food sector, which has been under pressure due to shifting consumer preferences. However, Morningstar notes that the company’s operational improvements—such as cost-cutting and portfolio optimization—position it for a rebound.
- Dividend Safety: The dividend payout ratio is comfortably below 50%, ensuring sustainability. KHC has increased its dividend for three consecutive years, and management has prioritized returning capital to shareholders.

This visual would show KHC’s dividend yield rising while the payout ratio remains stable, reinforcing its safety.

2. Verizon Communications (VZ): A Telecom Titan with a 6% Yield

Verizon is a Dividend Aristocrat with 18 years of consecutive dividend increases, offering a 6% yield—far above its telecom peers. Despite its high yield, the stock trades at a 4-star rating (Morningstar) and a modest 12% discount to fair value.

Why It’s a Buy:
- Dominant Market Position: Verizon is a leader in the U.S. wireless industry, which operates as an oligopoly. Its 2023 acquisition of Frontier Communications strengthens its broadband and fiber network, enabling margin expansion.
- Dividend Growth and Stability: The dividend has grown at a 3% annual rate over the past decade, and Verizon’s payout ratio remains below 60%, leaving room for further increases.
- Undervalued Amid Industry Consolidation: While the telecom sector has faced regulatory scrutiny, Verizon’s scale and infrastructure investments position it to capitalize on rising data demands.

This visual would highlight VZ’s steady stock performance and dividend growth, illustrating its reliability over time.

Key Considerations for Both Stocks

Valuation Safety: Both KHC and VZ trade at discounts to their intrinsic values, offering a margin of safety.
Sector Risks:
KHC faces headwinds from health-conscious consumers, but its cost-cutting and brand strength mitigate this.
VZ’s growth hinges on 5G adoption and regulatory stability, but its dominant market share reduces execution risk.
Dividend Sustainability: Both companies have payout ratios below 60%, and their cash flows are robust enough to support dividends even in downturns.

Conclusion: A Portfolio Built to Weather Any Storm

Investors seeking dividend growth stocks to hold forever should prioritize Kraft Heinz (KHC) and Verizon (VZ) for their undervaluation, sustainable yields, and long-term growth trajectories.

KHC offers a 45% valuation discount and a 5.25% yield, making it a rare value play in the consumer staples sector.
VZ combines a 6% yield with 18 years of dividend growth, backed by a fortress balance sheet and industry dominance.

Both stocks exemplify the dividend growth investing philosophy: buying quality companies at discounts, with dividends that grow over time. As of May 2025, their metrics—low payout ratios, high stars ratings, and undervaluation—make them exceptional buys for a patient, long-term investor.

While no stock is entirely risk-free, these two are structured to thrive through economic cycles. Pair them with a diversified portfolio, and you’ll be building wealth for decades to come.

Data as of May 2025. Always conduct your own research and consult a financial advisor before making investment decisions.

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