While the vast majority of our Ultimate Stock-Pickers are not dividend investors, a handful of them--Amana Trust Income (AMANX), Columbia Dividend Income (LBSAX), Oakmark Equity & Income (OAKBX), and Parnassus Equity Income (PRBLX)--focus more heavily on income-producing stocks in their pursuit of investment return. Warren Buffett at Berkshire Hathaway (BRK.B) has spoken highly of companies that return capital to shareholders and is not against investing in and holding higher-yielding names, with three of Berkshire's top five holdings--wide-moat rated Wells Fargo (WFC), Bank of America (BAC), and Coca-Cola (KO)--accounting for about one third of the insurer's equity portfolio and yielding more than the S&P 500.
As you may recall from previous articles, when we screen for top dividend-paying stocks among the holdings of our Ultimate Stock-Pickers, we try to find the highest-quality names that are currently held with conviction by our top managers. We do this by taking an initial list of the dividend-paying stocks held in the portfolios of our Ultimate Stock-Pickers and then narrow it down by concentrating on firms that we believe have sustainable competitive advantages, which, in our view, should allow them to generate the excess returns necessary to maintain their dividends over the long run. We also look for firms where there is lower uncertainty on our analysts' part regarding their future cash flows. We accomplish this by screening for holdings that are widely held (by five or more of our top managers), are currently priced to yield more than the S&P 500, have wide or narrow economic moats, and have uncertainty ratings of either low or medium.
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The Morningstar Ultimate Stock-Pickers Team does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.