The 10 Best Dividend Stocks

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 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 today 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 Today

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 Sept. 13, 2023.

1. Verizon Communications VZ
2. Pfizer PFE
3. Comcast CMCSA
4. Wells Fargo WFC
5. Gilead Sciences GILD
6. Medtronic MDT
7. Devon Energy DVN
8. Dow DOW
9. Public Service Enterprise Group PEG
10. WEC Energy WEC

Here’s a little bit about each cheap dividend stock, along with some key Morningstar metrics. All data is through Sept. 13, 2023.

Verizon Communications

• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium
• Forward Dividend Yield: 7.09%
• Industry: Telecom Services

Verizon tops our list of the best dividend stocks. This cheap dividend stock (which is also the fourth-largest holding in the Morningstar Dividend Yield Focus Index) is trading a whopping 37% 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 and its exposure to lead-sheathed cabling, says Morningstar director Mike Hodel—though the lead-sheathed cabling issue does increase uncertainty around the stock, he adds. Verizon posted solid second-quarter results, and Hodel expects margins and cash flow to move higher as network projects are completed and the promotional environment eases. Hodel observes that 50% to 60% of Verizon’s free cash flow is committed to the dividend.

Pfizer

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Forward Dividend Yield: 4.52%
• Industry: Drug Manufacturers—General

We think Pfizer stock is worth $48 per share, and it currently trades about 29% below that. We don’t think the market fully appreciates the pharmaceutical giant’s ability to offset major patent losses over the next five years, argues Morningstar director Damien Conover. Second-quarter results were mixed, owing to lower COVID-19 vaccine and treatment sales; Conover notes that Pfizer has contingency plans in place to cut costs if COVID-related sales don’t improve in the third quarter. He believes that Pfizer’s dividend is where it should be, as the company targets close to a 50% payout in dividends as a percentage of normalized earnings—on track for a mature industry.

Comcast

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Forward Dividend Yield: 2.78%
• Industry: Telecom Services

Comcast stock trades 25% below our $60 fair value estimate. The company’s second-quarter results were better than expected, with net broadband customer losses smaller than anticipated. We think Comcast is well positioned to limit broadband share losses and enjoy solid pricing power, says Morningstar’s Hodel. Comcast instituted a dividend in 2008 and has increased its payout by 17% annually, on average, notes Hodel. We think the balance sheet is sound, and shareholder returns are generally appropriate.

Wells Fargo

• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Forward Dividend Yield: 2.95%
• Industry: Banks—Diversified

Wells Fargo is the only bank on our list of cheap dividend stocks, trading 31% below our $61 fair value estimate. During the second quarter, Wells Fargo’s net interest income outperformed despite rising expenses, notes Morningstar strategist Eric Compton. Compton says that Wells Fargo’s balance sheet is strong and calls the bank’s current dividend strategy “appropriate.” He adds that Wells is doing a fine job on the share-repurchase front, too, buying roughly 2.6% of its outstanding shares this past quarter.

Gilead Sciences

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Forward Dividend Yield: 3.94%
• Industry: Drug Manufacturers—General

Gilead stock is a cheap dividend stock from the healthcare sector, with its shares trading about 20% 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 Morningstar Economic Moat Rating, says Morningstar strategist Karen Andersen. Second-quarter results came in strong. The company has steadily increased its dividend over time; its payout ratio hovers around 50%, which Andersen calls “reasonable.”

Medtronic

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Forward Dividend Yield: 3.20%
• Industry: Medical Devices

Medtronic is a cheap dividend stock, trading 27% below our $112 fair value. 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. Results were solid in the most recent quarter, and we think the recent uptick in medical utilization following the pandemic should continue through fiscal 2024, says Wang. Medtronic has raised its dividend for 46 consecutive years.

Devon Energy

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High
• Forward Dividend Yield: 9.46%
• Industry: Oil & Gas E&P

Devon Energy is the first of two newcomers this month to our list of the best dividend stocks, with its stock trading 17% below our fair value estimate of $61 per share. Devon Energy is one of the largest exploration and production companies in the United States. Given its cost advantages, we assign the firm a narrow economic moat rating, explains Morningstar analyst Katherine Olexa. We think the balance sheet is relatively strong, and like many E&P firms, Devon Energy follows a “fixed plus variable” dividend strategy, which calibrates its returns to shareholders with the commodity cycle, she adds.

Dow

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium
• Forward Dividend Yield: 5.29%
• Industry: Chemicals

Dow stock is trading 27% below our $72 fair value estimate. It’s also one of Morningstar’s top 33 undervalued stocks for the third quarter of 2023. One of the largest chemicals producers in the world, Dow has carved out a narrow economic moat owing to the cost advantages of its ethylene and propylene manufacturing operations in North America, explains Morningstar’s Olexa. Economic slowdowns hurt second-quarter performance, but we expect to see improvements along with the global economy in 2024, she says. The company has paid dividends of $2.80 per share in the past three years, which we expect to continue, says Olexa—though we think management will prioritize the dividend moving forward, she adds.

Public Service Enterprise Group

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Low
• Forward Dividend Yield: 3.71%
• Industry: Utilities—Regulated Electric

The first cheap dividend stock on our list from the utilities sector and our second newcomer this month, Public Service Enterprise Group is trading 6% below our $65 fair value estimate. We expect the company’s investments in energy infrastructure and clean energy at its rate-regulated New Jersey utility during the next five years to drive 7% annual earnings growth, says Morningstar strategist Travis Miller. He adds that management’s plan to allocate the bulk of its investment to the rate-regulated utility and dividend growth is a positive for shareholders.

WEC Energy

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Low
• Forward Dividend Yield: 3.57%
• Industry: Utilities—Regulated Electric

WEC Energy rounds out our list of the best dividend stocks, trading 11% below our fair value estimate of $96. The largest Midwest utility, WEC has built a narrow economic moat with service territory monopolies and efficient scale advantages, says Morningstar strategist Andrew Bischof. The company enjoyed a strong second quarter. We consider the firm’s 65%-70% payout ratio to be appropriate, given the high-quality and stable nature of the company’s regulated assets. And we think the company’s management team has done an exemplary job of allocating capital.

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 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.

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