3 of the Best Dividend Stocks to Own
These dividend stocks with economic moats offer durable payouts.
Susan Dziubinski: Hi, I’m Susan Dziubinski, co-host of The Morning Filter podcast. Each week at the end of an episode, Morningstar Chief US Market Strategist Dave Sekera shares a few stock picks. Dave’s picks are typically stocks that are trading below what Morningstar thinks they’re worth.
But besides valuation, what other qualities do Dave’s stock picks tend to have in common? For starters, they’re often stocks of companies with economic moats. We think companies with economic moats are likely to remain competitive for a decade or more. Dave’s stock picks also tend to be from companies that generate reliable cash flows and that pay at least a modest dividend.
Speaking of dividends, in today’s bonus pick segment, we’re focusing on three dividend stocks that have been among Dave’s stock picks in the past. From our perspective, we think they’re top dividend stocks to own, but we think you should only buy them when they’re undervalued and trading below our fair value estimates.
3 of the Best Dividend Stocks to Own
We think Bristol-Myers Squibb is one of the best dividend stocks to own. The company has carved out a wide economic moat with its lineup of patent-protected drugs, entrenched salesforce, and economies of scale. Bristol has been pretty adept at partnerships and acquisitions, which has strengthened its drug portfolio and pipeline. The drugmaker faces a significant patent cliff in the next two years, but we think newer therapies will help soften the impact. We believe the dividend looks secure over the next several years with a current dividend payout ratio well below 50%.
Read Morningstar’s full report on Bristol-Myers Squibb.
Duke Energy is also among the best dividend stocks to own. Duke is one of the largest utilities in the United States. We think it has a narrow economic moat due to its service territory monopolies and scale advantages. It’s also a plus that Duke’s regulatory environments are more constructive than its peers’ and are supported by better-than-average economic fundamentals in key regions. On the dividend front, the company’s policy is to pay out 60% to 70% of earnings, which we think is appropriate given the high quality and relatively stable nature of Duke’s regulated assets.
Read Morningstar’s full report on Duke Energy.
Lastly, we think Procter & Gamble is a top dividend stock to own. This leading household and personal care manufacturer’s portfolio of brands includes Tide, Charmin, and Pampers, among others. We assign the company a wide economic moat rating based on strong intangible assets and cost advantages. We believe that by investing in product innovation and marketing to support its portfolio, the company’s brands will maintain their clout with retailers and consumers, reinforcing that wide moat over the long term. We expect P&G to increase its dividend at a high-single-digit rate, implying an average annual payout ratio of around 70%.
Read Morningstar’s full report on Procter & Gamble.
For more stock ideas, be sure to tune in to The Morning Filter each week wherever you get your podcasts and visit Morningstar.com, too.
Morningstar directors Karen Andersen and Erin Lash and senior analyst Andrew Bischof provided the research behind this segment.
Watch 3 of the Best Smaller-Cap Stocks to Own for more from Susan Dziubinski.
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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