10 Top Dividend Stocks for 2025

David Harrell: Hi, I’m David Harrell, editor of Morningstar’s DividendInvestor newsletter, and I’m back once again with Dave Sekera, who is Morningstar’s chief market strategist. Dave, thanks for joining me.

David Sekera: I can’t believe it’s already the middle of the year at this point. It seems like we were just here not all that long ago.

Harrell: Right. So when we spoke back in January, you gave us your 10 dividend picks for 2025. Now, I sort of really, as an investor, hate to focus on anything as short term as six months. If you have a six-month time horizon, you probably shouldn’t be investing in equities. But can you give us a rundown of how your picks have performed so far this year? I know it’s kind of a mixed bag, with half of them in positive territory and half in negative territory right now.

Sekera: Yeah, I mean, to be perfectly honest, it has been a little disappointing. As you mentioned, having that long-term mindset, you don’t necessarily want to be looking at investing in equities kind of with that short six-month or shorter time frame. There’s been a number of them that have traded down thus far this year. So I guess the good news here is I’ve talked to the equity analysts that cover these stocks, and we still remain confident in our long-term investment thesis on these stocks.

So if anything else, a lot of times when I talk to investors and people are asking about how to trade in and out of positions, I usually advise investors to start with a smaller position than what maybe their full-size position would be. Maybe start with a half-size position, that way it leaves you some dry powder that, if the thing does trade down, you can actually layer more in and kind of dollar-cost average to the downside. So in this case a lot of these stocks actually are still very attractive today, and in fact are probably even more attractive today …

Harrell: Declined a little bit.

Sekera: … exactly, at the beginning of the year. Now the worst performer has been UPS UPS. It’s still a 4-star-rated stock at this point, and now the dividend yield is about 6.5%. When I look through our screens, of our wide-moat stocks that are undervalued, that’s the highest dividend yield that we’re seeing amongst wide-moat stocks today. So really just kind of the short story here for UPS, there’s really two things going on that I think caused it to trade down this year.

First, they are discontinuing their business with Amazon AMZN. Now, in our mind, that does reduce their top line, but it was a very low margin business. It’s not something that’s really going to necessarily impact the long-term earnings stream of that company as much as I think the market is pricing in.

The other part is that we do expect that the rate of economic growth is going to slow this year. And so I’ve seen a lot of these more cyclical type of stocks sell off this year because the market is also pricing in that slower growth rate. In this case, I think the market is probably overestimating that slowing growth rate, thinking about the value of that stock here today.

Harrell: Got it. And I’ll just point out here that both UPS and Amazon are stocks that I own. And what about Kraft Heinz KHC? That’s another one of your picks that’s in negative territory year-to-date. What’s the story there?

Sekera: So, Kraft Heinz is a 5-star-rated stock. It’s very undervalued. In fact, it trades at about half of our long-term fair value estimate at this point in time. Provides a 6.2% dividend yield and it’s probably one of the most undervalued stocks that we rate with a narrow economic moat today. Now, a lot of food stocks have also done very poorly thus far this year.

There’s really two things going on there. So one, food stocks in general, their operating margins are still under pressure. So essentially what happened is, as inflation kicked up a couple of years ago, they are unable to increase their own prices as fast as the costs for going into those food inputs went up, so their margins have come down. Long-term investment thesis is that, over time, they will catch back up, go back to more of a normalized historical operating margin, so we still expect that to happen over time as well.

I think the other thing that the market is pricing in, and we think the market is overestimating the impact of, is going to be the weight loss drugs, all those GLP-1 drugs. So a lot of these food companies, especially those with a high percentage of their business in snacks and desserts, have also been under a lot of pressure. We think that, as much as these stocks have been pushed down, I think the market’s overestimating the long-term impact of those GLP-1 drugs.

Harrell: Got it. And two of your picks from January were REITs, real estate investment trusts, and I know one is up for the year and one’s down for the year.

Sekera: Yeah, so Healthpeak DOC is the one that is down for the year. The ticker symbol on that one is actually DOC. But it’s a 5-star-rated stock, trades at a 40% discount to fair value, has a 7.1% dividend yield. That company is mostly invested in medical office buildings and life sciences. In my view, that’s actually some of the most defensive real estate that you can be invested in. To some degree, I think the market has been disappointed because the increases that they’ve been able to charge in rents has gone up a lot less than what we’ve seen for other REITs who’ve been able to increase their rent charges more, so it’s been lagging behind as far as that goes. But when we look at the value of the assets that that REIT owns, we remain extremely confident in our view as far as valuation.

I actually talked with Kevin Brown, he’s the equity analyst that covers that, and he noted when we had a discussion that when he looks at the value that’s implied on the valuation of the assets in that portfolio, that he’s seeing that the valuation there is below what he would consider to be like mid-tier-quality medical office buildings and life sciences, whereas he thinks it’s high-quality that they own in their portfolio. It’s already trading at a valuation below mid-quality, even though we think it’s a much better portfolio than what the market is pricing in. So that’s another one that we’re very confident in our valuation.

Another comment that he made, which is attractive to me, of course, is that he also thinks that not only do they have their dividend well-covered, but he’s looking for that dividend to increase by 4% per year thereafter as well.

Harrell: OK, and that’s a REIT that might benefit from some demographic trends as well.

Sekera: Sure. So again, we should see a lot more healthcare usage over the years as the baby boomers continue to age.

Harrell: OK. Now you’re going to keep some of your names from January. You’re going to remove some of them. I know that two of the names you’re taking off your list are healthcare names. Is that specific to those stocks, or is this a general call on that sector that you’re making?

Sekera: Yes. No, so all kidding aside, so the first one is Johnson & Johnson JNJ. That stock has actually done pretty well this year. I think it’s up double the market rate of return thus far. I still think it’s a core holding, but with as much as the stock has gone up at this point it’s not nearly as attractive, doesn’t provide nearly the margin of safety. The dividend yield isn’t as attractive as some of the other stocks, you know, that we’re looking at today. So really that to me is much more just based on valuation, but yet for long-term holders, I still think it’s a core holding.

The other one is Bristol-Myers BMY. So Bristol-Myers actually was doing pretty well for the most part of this year and then has recently sold off over the past couple of weeks. And part of the reason I’m pulling this off the list is really much more about my perception of market sentiment in this case. So the Trump administration has come out. They’ve made some headlines about doing what they can to try and reduce pharmaceutical prices, some discussion about maybe potentially having a most favored nation pricing where the United States would only be able to pay the highest price that’s being paid by some other country out there for those pharmaceuticals.

So I’m just concerned that this is going to be something that will probably be in the headlines for some time period to come. We’ll see what kind of rules and regulations may come out of this. So really that one, I’m just much more concerned about it from kind of that negative market perception basis more than anything else.

10 Top Dividend Stocks for 2025

1. United Parcel Service UPS
2. Kraft Heinz KHC
3. Healthpeak DOC
4. Eversource ES
5. KeyBank KEY
6. Energy Transfer ET
7. Lyondell LYB
8. Verizon VZ
9. Realty Income O
10. Portland General POR

Harrell: OK. And one of the names you’re also pulling is an energy stock.

Sekera: Yeah, so Devon DVN is what we’re pulling this time around. So a couple things going on here. So the stock has moved up. I think it’s about maybe up 6% year to date. Not a huge return, but …

Harrell: It’s above the market as a whole.

Sekera: Exactly. Certainly, you know, in the right direction. The stock itself still looks somewhat undervalued, but I know we actually cut our fair value estimate twice over the course of this year. When we’re looking at the amount of drilling versus the amount of oil that’s coming out of the ground, looking at some of their costs. As they’ve gotten less oil out for the cost of the drilling, we’ve reduced our fair value a couple of times. Between a combination of our fair value estimate coming down and the market moving up doesn’t look as nearly as attractive to me as it did when we first started talking about it.

But then again also an excellent example as far as when you’re thinking about investing, looking for those stocks that do have that significant margin of safety below your intrinsic valuation so that way as things change and as that gets incorporated in the fair value if those fair values are coming down you’ve already provided for enough of a cushion where you bought it from to account for that.

Harrell: Got it. And another name you’re pulling from your list is a utility.

Sekera: Yeah, so FirstEnergy FE. Nothing wrong with FirstEnergy. It’s still 4-star-rated stock. It’s at about a 10% discount to fair value, dividend yield, 4.5%. So it’s not that there’s anything wrong or anything changing about this one. It’s just that the other utility that we’re pulling in this semiannual period, I think just looks more attractive at this point in time.

Harrell: OK, so you’re taking one utility out, swapping another one in.

Sekera: Exactly. So it’s really just a swap for Eversource ES. Eversource, 4-star-rated stock, 14% discount to fair value, 4.7% dividend yield. I talked to Travis Miller. He’s the equity analyst that covers this stock. Actually, I’m going to quote him here because I think he said it best with this one. He’s looking at it as being “a 4.7% yield, 20% P/E upside compared to the rest of the P/Es in the sector and 6% long-term earnings growth for utility.” So in his view, among the best total returns right now in the utility sector.

I’d also just kind of cuff that, saying it’s very difficult right now to find undervalued stocks in the utility sector. It is being considered as kind of a second derivative play on artificial intelligence. Last year and this year, we’ve seen a lot of positive market sentiment. It does take multiple times more electricity to run AI than traditional computing. But at this point on a sectorwide basis, we think many of these utility stocks have run up too far here.

Harrell: OK, great. And Eversource is another stock that I own right now. You also added a regional bank. Can you talk about that?

Sekera: Sure, so KeyBank KEY, 4-star-rated stock, 17% discount, 5.2% dividend yield. Now if you remember back when Silicon Valley Bank failed, all of these regional banks essentially just fell off of a cliff. A lot of them at that point in time looked very attractive. I think we had at least a couple of them on our dividend picks list since then. Now the sector has largely recovered at this point in time. It’s much harder to find these undervalued bank stocks, but we do think that KeyBank does look attractive right now. This is one where we still expect to see ongoing net interest income improvement, improvement in that interest margins. As that comes to fruition over time, that could be a catalyst for the stock to move up. In the meantime, you’re collecting a very attractive dividend yield.

Harrell: Got it. And another new name is an MLP, or master limited partnership. Just caution here that the one thing to keep in mind is MLPs are generally not considered appropriate for tax-deferred accounts but make sense in a taxable portfolio.

Sekera: Yeah, in fact, it’s actually been a while since we’ve talked about the MLPs. I know MLPs were a number of the names that we have had on our best picks list for dividend stocks a number of years ago. They had all moved up to the point where they were essentially fairly valued. I believe this one has fallen back about 8% year to date. Currently at a 15% discount, over 7% dividend yield, 4-star-rated stock. It’s gotten to the point where it kind of makes the list once again. Personally, I like kind of the defensive characteristics of these companies, especially when you’re getting that kind of dividend yield.

Harrell: And the name is Energy Transfer ET.

Sekera: Energy Transfer.

Harrell: OK, great. You have your final new addition as an even higher yield than energy transfer. What’s the name, and do you feel that dividend is sustainable?

Sekera: Yeah, so this one will be for people that might be willing to stretch a little bit more for yield, take maybe a little bit more risk in their portfolio. But we think that that risk is really already encapsulated within where the stock price is trading today. That is Lyondell, ticker LYB, 5-star-rated stock, over 40% discount to our fair value, 9% dividend yield. We do rate the company with a narrow economic moat. So we do see that this company has long-term durable competitive advantages.

Now, for the most part, it is a chemical producer, so you can have a lot of cyclical swings in their business, but I think that’s what provides the opportunity today. Looking at how much the stock has sold off compared to our long-term valuation, I think there is more than enough margin of safety in the stock price today. I think the market is really looking at and already essentially pricing in a potential or at least certainly a high probability of a recession at this point in time.

Talked to our equity analyst Seth Goldstein on this one about the dividend. He’s pretty confident that the dividend should be secure this year. Last year’s dividend, they paid that out of free cash flow. They still had more money to spare to cover it last year. He thinks that it looks good this year. He also thinks that with a strong balance sheet, with the cash flows that they have, that he’s pretty confident about the sustainability of this dividend as well.

Harrell: Great. And just real quick, I think there’s three other returning names from January, and that’s Verizon VZ, Realty Income O, and is it Portland General POR?

Sekera: Yeah, so both of Portland General and Verizon are still 4-star-rated stocks. No change to our investment thesis on any of those. If you remember, like with Verizon, we’ve talked about that one before. Generally, we expect that the wireless industry itself is starting to act more like an oligopoly. We have seen that. They’re competing less on price. In this case, we’re watching for those operating margins to continue to keep expanding. Then Realty Income, still a 5-star-rated stock, really no change in the operation fundamentals of that company, still providing a nice, healthy 5.6% dividend yield.

Harrell: Great. And finally, those Verizon and Realty Income, two more that I own right now.

I just want to finish up with a general question for you. We have a lot of uncertainty right now in the market due to a number of factors, which you’ve been talking about for Morningstar. But one of those is tariffs. Morningstar Equity Research recently put out a piece where they looked at sort of the bear case for tariffs, which were substantially higher than they are right now or were previously, and then their bull case, which is still higher tariffs than we had prior to April 2, but not quite as high. Then they had, so the analysts looked across various sectors and industries, and to see what the impact would be, expected impact of those tariffs.

As a dividend investor, I was happy to see that some of your more dividend-rich sectors—utilities, consumer defensive, and healthcare—those were the ones that they expected the tariffs to have the least impact on. Just any thoughts from you on looking ahead on performance of dividend stocks relative to the broader equity market?

Sekera: Pretty wide-ranging question there. So talking about tariffs, so first of all, when I’m thinking about tariffs today, we’re still in the early stages of the ongoing negotiations. I think it’s still, in my mind, kind of clear as mud exactly with some of the other trading blocs, what we’re really looking for versus what’s in the headlines versus what these other trading blocs may or may not be willing to agree to. If you kind of go back to my last couple of monthly outlooks, I’m talking about like right now, it kind of feels to me like we’re like in the middle of a hurricane.

The market at the beginning of the year started off at a pretty high valuation. In fact, it was trading at a pretty rare premium to our fair values. The AI stocks are all overvalued. They’re 1- and 2-star-rated stocks, overextended, started to fall after DeepSeek hit the headlines. Then, of course, we had the “Liberation Day” tariffs, and the market essentially just fell off a cliff at that point in time.

Now, thinking about this from a long term perspective, yes, looking at what the potential impact can be from tariffs, we actually changed to an overweight recommendation on US equities overall on the April 7 episode of our podcast.

Harrell: Because prices had come down so much.

Sekera: Exactly. Because at that point in time, we were trading essentially a 17% discount to a composite of our fair values. And we talked about that on The Morning Filter, which is the podcast that Susan and I do every Monday morning.

Now, the markets have snapped back. We’ve been in a relatively calm period essentially for like the past month and a half now, and I think that’s allowed the equity market to recover back toward our fair values. But again, we still have the first deadline coming up in the middle of July for negotiations with the EU, Japan, India, Canada, and so forth. We have earnings season start right thereafter, I believe July 15 with the big mega banks. Then the deadline pause with China comes up, I think it’s like maybe around middle of August.

So all of that is still yet to come and so as we get closer and closer to those deadlines, I think we’re going to start seeing more and more market caution, maybe some people looking maybe to get out of stocks before those deadlines hit. Who knows what kind of media we might see, what kind of headlines. It wouldn’t surprise me if some of the people that we’re negotiating with might try and use the media in order to try and sway those negotiations one way or the other. So I’m very cautious here in the short term with how that market reaction might be.

Harrell: So a wide range of possible outcomes.

Sekera: Exactly. Which is why I think positioning, which is always important, is extra important now. So we do see a lot of value in value stocks. Overall trading at about a 14% discount to our fair value, and of course those are also the stocks that more often than not tend to pay the higher dividends, are in some of those same sectors that you were talking about that are more defensive-oriented anyway, so we do see a lot of value in defensive sectors, especially in high-dividend-paying stocks, those stocks already trading at a wide margin of safety that you can be pretty confident to own those through any kind of market cycle.

If I’m wrong, we get through all of this unscathed, you’re still going to be positioned in high-dividend-paying stocks at a pretty low valuation, which I think over time will give you some pretty attractive returns. I would underweight growth stocks. I think growth stocks right now are getting to be a little overextended. They were trading at about an 11% premium to fair value. And I do think you need to make sure when you’re looking at your sector exposure to understand what’s in those individual sectors.

So, for example, consumer defensive as a sector is overvalued. The reason being is you’ve got Walmart WMT, Costco COST, Procter & Gamble PG, make up I think it’s well over a third of the market capitalization of that sector. Those stocks are highly valued in our mind. They’re rated either 1 or 2 stars right now. A lot of those food companies we talked about are in that sector, which are very undervalued, so this might be one of those cases for investors that can take on that single-stock risk, it’s actually much more attractive buying individual stocks in that sector than maybe an overall sector ETF, whereas like with the healthcare sector that looks attractive to us, that is pretty broadly undervalued except for Eli Lilly LLY. But again, another sector where you can take much more of that sector exposure if you prefer that in your portfolio than buying individual stocks.

Harrell: Got it. Well, Dave, thanks for joining me. And as always, thanks for sharing your insight.

Sekera: Of course. Thank you, David.

Harrell: I’m David Harrell from Morningstar DividendInvestor. Thanks for watching.

Watch The 10 Undervalued Dividend Stocks for 2025 for more from this series.