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The 10 Best Dividend Stocks

These undervalued stocks with reliable dividends are worth considering.

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What should investors be looking for when it comes to choosing the best dividend stocks?

At Morningstar, we think that the best dividend stocks aren’t simply the highest-yielding dividend stocks. Instead, we suggest that investors look beyond a stock’s yield and instead choose stocks with durable dividends and buy those stocks when they’re undervalued.

“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield,” explains Dan Lefkovitz, a strategist for Morningstar Indexes. “Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to screen for dividend durability and reliability going forward.”

David Harrell, the editor of Morningstar DividendInvestor, suggests focusing on companies with management teams that are supportive of their dividend strategies and favoring companies with competitive advantages, or economic moats.

“A moat rating does not guarantee dividends, of course, but we have seen some very strong correlations between economic moats and dividend durability,” Harrell says.

Given ongoing economic uncertainty and stock market volatility, investors looking for the best dividend stocks might consider adding undervalued, quality dividend stocks to their portfolios. After all, quality companies have the financial stability to maintain their dividends during questionable economic periods, and price risk is reduced when investors can buy the stocks of these companies on the cheap.

10 Best Dividend Stocks to Buy

To find the best dividend stocks, we turn to the Morningstar Dividend Yield Focus Index. The dividend stocks on this list are among the index’s top constituents, and they were also undervalued, with Morningstar Ratings of 4 and 5 stars as of March 12, 2024.

  1. Verizon Communications VZ
  2. Philip Morris International PM
  3. PepsiCo PEP
  4. Altria Group MO
  5. Bristol-Myers Squibb BMY
  6. Medtronic MDT
  7. Gilead Sciences GILD
  8. Pioneer Natural Resources PXD
  9. Duke Energy DUK
  10. Lockheed Martin LMT

Here’s a little bit about each cheap dividend stock, along with some key Morningstar metrics. All data is through March 12, 2024.

Verizon Communications

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 6.57%
  • Industry: Telecom Services

Verizon tops our list of the best dividend stocks to buy, trading a whopping 26% below our fair value estimate of $54 per share. We think the market is overly focused on Verizon’s challenges to add postpaid consumer wireless customers, says Morningstar director Mike Hodel. Hodel argues that the improving competitive balance in the wireless industry will allow the major US carriers to boost profitability in the years ahead. Verizon’s fourth-quarter results showcased stellar free cash flows. Hodel observes that Verizon directed 60% of 2023′s cash flows to the dividend.

The 10 Undervalued Dividend Stocks for 2024

Philip Morris International

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 5.43%
  • Industry: Tobacco

Philip Morris International is the first of two tobacco firms on our list of cheap dividend stocks, trading 8% below our $103 fair value estimate. The company aims to generate more than half of its revenue from combustibles by 2025, which may be ambitious, says Morningstar director Philip Gorham. Fourth-quarter results were slightly ahead of our expectations, but 2024 guidance suggested a slowdown in adjusted earnings growth. We expect the company to increase the dividend at a mid-single-digit rate, in line with earnings per share growth and a slowdown from its recent double-digit rate.

PepsiCo

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 3.08%
  • Industry: Beverages—Nonalcoholic

Pepsi is the first dividend aristocrat on this month’s list of the best dividend stocks to buy. Pepsi generated mixed results in 2023 and issued a cautious outlook for 2024, reports Morningstar analyst Dan Su. We think Pepsi stock is worth $180, and shares trade below that. Pepsi has raised its dividend for 51 consecutive years, and we expect the payout ratio to remain at 70% and dividend payments to increase 8% annually over the next decade, says Su.

Altria Group

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 8.92%
  • Industry: Tobacco

This month’s highest-yielding stock on our list of the best dividend stocks to buy, Altria is trading 17% below our fair value estimate of $52 per share. The leading tobacco maker in the United States, Altria is pursuing a multipronged approach to cigarette substitutes, points out Morningstar’s Gorham. The ability to consistently price above its rate of cigarette volume declines should ensure that the company can continue to increase its revenue, earnings, and the dividend, he adds. Gorham says that dividends are the company’s top capital-allocation priority, with a stated payout ratio target of 80%.

Bristol-Myers Squibb

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 4.25%
  • Industry: Drug Manufacturers—General

The first of two drugmaker stocks on our list of undervalued dividend stocks to buy, Bristol-Myers Squibb trades 14% below our fair value estimate of $63. The company has built a strong portfolio of drugs and a robust pipeline through adept acquisitions, explains Morningstar director Damien Conover. Its lineup of patent-protected drugs, entrenched salesforce, and economies of scale underpin its wide moat rating. While the firm’s 30% payout ratio rests below the industry average of 50%, we think the level is about right, as upcoming patent losses will drive the payout ratio closer to average over the next five years, concludes Conover.

Medtronic

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 3.21%
  • Industry: Medical Devices

Medtronic stock trades 23% below our $112 fair value estimate. The largest pure-play medical-device maker is a key partner for its hospital customers, thanks to its diversified product portfolio aimed at a wide range of chronic diseases, Morningstar senior analyst Debbie Wang explains. Medtronic’s plans to spin off its patient monitoring and respiratory innovations businesses will only help the company pivot more toward faster-growing markets, she adds. Medtronic has raised its dividend for 46 consecutive years, earning it dividend aristocrat status.

Gilead Sciences

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 4.00%
  • Industry: Drug Manufacturers—General

Gilead stock trades 23% below our fair value estimate of $97 per share. The company generates outstanding profit margins with its HIV and HCV portfolio, and its portfolio and pipeline support a wide moat rating, says Morningstar strategist Karen Andersen. Fourth-quarter results were in line with our expectations. The company has steadily increased its dividend over time; its payout ratio hovers around 50%, which Andersen calls “reasonable.”

Pioneer Natural Resources

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 4.49%
  • Industry: Oil & Gas E&P

Pioneer Natural Resources is a cheap dividend stock to buy, trading 11% below our $274 fair value estimate. Pioneer will be acquired by Exxon Mobil XOM during the second quarter of 2024 in an all-stock deal. Our fair value estimate for Pioneer stock represents the product of Exxon shares that Pioneer shareholders will receive and our Exxon fair value estimate, explains Morningstar director Josh Aguilar.

Duke Energy

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 4.29%
  • Industry: Utilities—Regulated Electric

Duke Energy stock is trading 15% below our $112 fair value estimate. One of the largest regulated utilities in the United States, Duke has carved out a narrow economic moat because of the constructive regulatory environments in which much of its regulated business operates and better-than-average economic fundamentals in its key regions, explains Morningstar strategist Andrew Bischof. The company’s balance sheet is strong, and its dividend policy to pay out 65% to 75% of earnings is appropriate, he adds.

Lockheed Martin

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 2.83%
  • Industry: Aerospace & Defense

Lockheed Martin rounds out our list of the best dividend stocks to buy—it’s a newcomer to the list this month, too. As a bet on the defense industry, wide-moat Lockheed is hard to beat, argues Morningstar analyst Nicolas Owens. “Biggest isn’t always best, but Lockheed (and investors) benefit from the sheer scale of its tens of billions of dollars of contracts that provide defined decadeslong revenue and profit streams,” he explains. Given the company’s conservatively run balance sheet, stable business model, and strong history of returning capital to shareholders, the dividend will likely remain a priority. We think the stock is worth $482, and shares trade 10% below that.

What Is the Morningstar Dividend Yield Focus Index?

A subset of the Morningstar US Market Index (which represents 97% of equity market capitalization), the Morningstar Dividend Yield Focus Index tracks the top 75 high-yielding stocks that meet our screening requirements for quality and financial health.

How are the stocks selected for the index? Only securities whose dividends are qualified income are included; real estate investment trusts are tossed out. Companies are then screened for quality using the Morningstar Economic Moat and Morningstar Uncertainty Ratings. Specifically, companies must earn a moat rating of narrow or wide and an Uncertainty Rating of Low, Medium, or High; companies with Very High or Extreme Uncertainty Ratings are excluded. The index includes a screen for financial health using a distance-to-default measure, which uses market information and accounting data to determine how likely a firm is to default on its liabilities; it is a measure of balance-sheet strength.

The 75 highest-yielding stocks that pass the quality screen are included in the index, and constituents are weighted according to the total dividends paid by the company to investors.

The Best Dividend Stocks: More Ideas to Consider

Investors who would like to uncover more cheap dividend stocks to research further can do the following:

  • Review the full list of dividend stocks included in the Morningstar Dividend Yield Focus Index. Those dividend stocks with Morningstar Ratings of 4 or 5 stars are undervalued, according to our metrics.
  • Use our Morningstar Investor Screener tool to find the best dividend stocks according to your specific criteria. You can search for stocks based on their dividend yields, valuation measures such as price/earnings, and more.
  • Use Morningstar Investor to build a watchlist of the best dividend stocks and create a view that allows you to easily follow the valuations, ratings, and dividend yields of the stocks on your list.
  • Watch our dividend stock video series, hosted by David Harrell, for ideas to consider.

Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Please click here for a list of investable products that track or have tracked a Morningstar index. Morningstar, Inc. does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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