Three Undervalued Dividend Champions with Strong Moats and Sustainable Yields

In an era of economic uncertainty and market volatility, investors are increasingly drawn to dividend-paying stocks offering both income stability and capital appreciation potential. Among the most compelling candidates today are Scotts Miracle-Gro (SMG), CNH Industrial (CNH), and The Home Depot (HD). While all three boast robust economic moats and sustainable dividends, Morningstar's analysis reveals that two—Scotts and CNH—currently trade at significant discounts to their fair value estimates, making them particularly attractive buys. Below, we dissect the opportunities and risks tied to each.

Scotts Miracle-Gro (SMG): A Green Thumb in Undervalued Territory

Scotts, a leader in lawn and garden products, trades at $57.31—a 36% discount to its Morningstar fair value estimate of $90 per share. This stark undervaluation, coupled with a 4.61% dividend yield, positions SMG as a top pick for income-focused investors.

Why the Discount?
The stock's underperformance stems from short-term macroeconomic pressures, such as higher input costs and seasonal demand volatility. However, Morningstar's 4-star rating underscores the company's enduring moat: its brand strength, partnerships with municipalities to expand green spaces, and a robust gross margin trajectory. SMG's 2025 guidance reaffirmation and initiatives like farm-to-school programs further highlight its long-term growth potential.

Investment Takeaway:

Buy SMG for its high yield and wide margin of safety. Investors should prioritize its dividend growth trajectory and the company's ability to capitalize on secular trends in home gardening and urban sustainability.

CNH Industrial (CNH): A Tractor's Turnaround

CNH Industrial, a global leader in agricultural and construction equipment, is trading at $11.60—a staggering 68% discount to its Morningstar fair value of $36.96 (as of June 2025). This undervaluation, rated 5 stars by Morningstar, reflects market skepticism about its growth prospects.

The Moat Advantage:
CNH's narrow moat is anchored in its dealer network spanning 164 countries, proprietary technology (e.g., precision farming tools), and captive finance subsidiary. Its strategy as a “fast follower” behind market leader John Deere has allowed it to capture cost efficiencies while avoiding overexpansion risks.

Catalysts for Revaluation:
CNH's geographic sales diversification (40% North America, 32% Europe/Middle East/Africa) and margin improvements driven by tech add-ons make it a long-term bet on global agricultural demand. Analysts predict a 218% upside from current prices if the stock converges to fair value.

Investment Takeaway:

CNH is a high-risk, high-reward play for investors with a multi-year horizon. Its valuation gap suggests significant upside potential, but geopolitical risks (e.g., trade policies, commodity prices) could delay revaluation.

The Home Depot (HD): A Dividend Stalwart, but Overvalued

Home Depot's $367.33 stock price represents a 19% premium to its Morningstar fair value of $308, making it the least compelling of the trio. However, its wide economic moat (brand equity, operational scale) and 2.5% dividend yield (annualized $9.20) still warrant attention.

The Contradiction:
While HD's dividend growth and market share dominance in home improvement are undeniable, its current valuation—trading at 26x 2025 EPS—suggests limited upside. Morningstar's 2-star rating reflects this overvaluation.

Investment Takeaway:

HD is a hold, not a buy. Investors should await a correction before considering entry. Its dividend provides ballast in a portfolio, but capital appreciation prospects are muted absent a valuation reset.

Conclusion: Prioritize SMG and CNH for Value, Monitor HD

The dividend trio offers distinct opportunities:
- SMG and CNH are undervalued gems with wide margins of safety. SMG's yield and CNH's asymmetric upside make them top buys.
- HD, while a dividend stalwart, is overvalued and lacks near-term catalysts for price convergence.

Investors seeking income and resilience should overweight SMG and CNH. For HD, patience is advised. In a market hungry for stability, these three stocks—especially the first two—remain cornerstones of a prudent dividend portfolio.

Always conduct your own research and consult a financial advisor before making investment decisions.