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Investing Specialists

4 Dividend-Payers From the Ultimate Stock-Pickers

These firms are both trading at a significant discount to their fair value estimates and offer a solid dividend yield.

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The vast majority of our Ultimate Stock-Pickers have never been mistaken for dividend investors. That said, a handful of them-- Amana Income Investor (AMANX),  Columbia Dividend Income (LBSAX),  Oakmark Equity & Income (OAKBX), and  Parnassus Core Equity Investor (PRBLX)--are more focused on income-producing stocks in their pursuit of investment gains. We could also argue that Warren Buffett at  Berkshire Hathaway (BRK.A)/(BRK.B) has shifted his investment portfolio to be more of an income generator, with the firm's four largest stock holdings--wide-moat  Wells Fargo (WFC), narrow-moat  Kraft Heinz (KHC), wide-moat  Coca-Cola (KO), and narrow-moat  IBM (IBM)--which accounted for 59% of the insurance company's equity portfolio at the end of 2015 all yielding more than the S&P 500 TR index (at 2.2% at the end of last week).

As you may recall from our last dividend-themed article, when we screen for top dividend-paying stocks among the holdings of our Ultimate Stock-Pickers we try to home in on the highest-quality names that are currently held with conviction by our top managers. We do this by taking an initial list of more than 500 different dividend-paying stocks held by our Ultimate Stock-Pickers and then narrow it down by focusing on firms that we believe have competitive advantages, which should allow them to generate the excess returns they'll need to maintain their dividends longer term, as well as lower uncertainty regarding future cash flows. We accomplish this by screening for holdings that are widely held (by five or more of our top managers), are yielding more than the S&P 500, represent firms with wide or narrow economic moats, and have uncertainty ratings of either low or medium.

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.