10 Most Undervalued Dividend Growth Stocks According to Hedge Funds

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3. The Coca-Cola Company (NYSE:KO)

Number of Hedge Fund Holders: 90

Dividend Yield as of October 27: 2.30%

The Coca-Cola Company (NYSE:KO) is a global beverage manufacturer and marketer operating in over 200 countries and territories. The company principally sells its beverage concentrates and syrups to independent bottlers who then manufacture, package, and distribute the finished product.

Coca-Cola has a dividend yield of about 2.3%, on an annualized basis, at a quarterly dividend of $2.12 per share. It’s been increasing its annual dividend for 64 years in a row. In February 2026, the board approved a 4% increase in the quarterly payment, from $0.51 to $0.53 per share, bringing the annualized dividend to $2.12, up from $2.04 in 2025.

Coca-Cola’s latest results also underpin its dividend profile. Q3 2026 net revenue was up 7% YoY to $13.4 billion, with global unit case volume up 5%. Operating margin was 33.4% compared to 32.0% a year earlier. For the first nine months of 2026, the company generated $12.5 billion in operating cash flow and $11.4 billion in free cash flow. These cash flows provide very good coverage of the dividend. Read the full dividend analysis here.

Coke paid out around $8.8 billion in dividends in 2025, so the free cash flow generated through September 2026 alone is already in excess of that annual dividend payment. The key question is whether it can continue to generate cash as it ramps up its marketing spend and manages input costs. The most recent results showed operating expenses and marketing spend up, partly negating the benefit of the revenue growth.

2. ExxonMobil Holdings Corporation (NYSE:XOM)

Number of Hedge Fund Holders: 96

Dividend Yield as of October 27: 2.27%

ExxonMobil Holdings Corporation (NYSE:XOM) is an integrated energy company with operations in oil and gas production, refining, chemicals, and lower-emissions energy technologies. It pays a quarterly dividend of $1.03 per share, equating to $4.12 per year. The stock has a dividend yield of around 2.3%. ExxonMobil has increased its annual dividend for 43 consecutive years, and the most recent increase of 4% was announced in 2025. The company’s dividend is underpinned by cash flow from both its upstream and downstream businesses, with the dividend being subject to the volatility of oil and gas prices. Read the full dividend analysis here.

In the second quarter of 2026, the company generated $23.6 billion in operating cash flow and $17.2 billion in free cash flow. It paid out $4.3 billion in dividends during the quarter, which is a very healthy level of cash flow coverage for the dividend. The dividend history is one of a very long string of annual increases, but the quarterly dividend has to be looked at in the context of cash flow in different commodity price regimes.

In 2025, ExxonMobil had $52 billion in operating cash flow and $26.1 billion in free cash flow and paid out $17.2 billion in dividends. That left cash flow after capital spending just sufficient to cover dividend payments, though that buffer would erode with weak oil prices or higher investment spending. At the current annualized rate, it’s a very low yield when you compare it to other energy stocks. The attraction is in the combination of the income on a quarterly basis and the very long track record of dividend growth rather than the yield per se. The track record has to be weighed up against oil price sensitivity and the massive capital requirements of the company when you’re looking at the sustainability of future increases.

1. Johnson & Johnson (NYSE:JNJ)

Number of Hedge Fund Holders: 117

Dividend Yield as of October 27: 2.01%

Johnson & Johnson is an innovator in prescription medicines and medical technologies with its business split between Innovative Medicine and MedTech. The company pays a quarterly dividend of $1.34 per share, which is $5.36 per year. It gives the stock a dividend yield of 2.0% as of October 2027.

In April 2026, J&J increased its dividend by 3.1%, taking its dividend growth streak to 64 years. The most recent quarter’s results also provide some context for the dividend payout. Q2 2026 sales for JNJ were $25.31 billion, up 6.6% YoY, and it generated an estimated $8.7 billion in free cash flow for the first half of the year. The dividend paid in the quarter was $3.23 billion, as per the SEC filing. Read Johnson & Johnson’s Dividend Machine Is Running. Can Earnings Keep Up?  for full dividend analysis.

The $5.36 annualized dividend is roughly 46% of the company’s 2026 adjusted earnings per share midpoint of $11.68. That would suggest there is scope for the dividend within the management guidance on earnings. The caveat being that adjusted earnings don’t necessarily equate to cash available for distribution. Johnson & Johnson’s appeal is its long track record of dividend growth, from its med and medical device businesses. The yield is not particularly high at around 2%, so for an income investor the current dividend has to be weighed up against the prospect of future dividend increases.

While we acknowledge the risk and potential of JNJ as an investment, we believe certain AI infrastructure stocks offer far stronger long-term potential at a much more attractive entry point. If you are looking for an AI stock more promising than JNJ that operates as a critical AI tollbooth and stands as the most important company in the world, check out our report about this must-own AI stock.

READ NEXT: 10 Best Dividend Stocks with Monthly Payout and 10 Dividend Stocks with the Highest Yield

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