3 Top Dividend Stocks the Best Money Managers Like

Susan Dziubinski: Hi. I’m Susan Dziubinski with Morningstar.

To generate new dividend stock ideas for investors to consider, we’ve dug into the portfolios of the industry’s best concentrated fund managers. Concentrated fund managers invest in 30 to 75 stocks, which means they’re choosy about what they buy. And when they buy, they typically have high conviction in their purchases.

Specifically, we’ve isolated three prominent dividend stocks among the managers of concentrated large-cap funds that earn our top Morningstar Medalist Rating of Gold. Eleven funds made the cut. None of these dividend stocks looks like screaming bargains today. But they’re great candidates for a dividend stock watchlist.

3 Top Dividend Stocks the Best Money Managers Like

1. Union Pacific UNP
2. ConocoPhillips COP
3. Bank of America BAC

The first dividend stock that the best large-cap money managers like is Union Pacific. Six of our best managers own this railroad stock in their portfolios. Union Pacific is the largest public railroad in North America. Like other railroads that Morningstar covers, we think Union Pacific has significant cost and scale advantages that will allow it to maintain a competitive edge for 20 years or more. That’s why we award the company a wide economic moat rating. We view Union Pacific’s balance sheet as sound and its distributions to shareholders as appropriate. The company consistently returns cash to shareholders via share repurchases and rising dividends. We think Union Pacific stock is worth $209.

Five of our best money managers own ConocoPhillips. This independent exploration and production company focuses on shareholder returns. To that end, the company has instituted a three-tiered framework for returning 30% of its operating cash flow to shareholders each year. That comprises ordinary dividend payments that the company plans to increase annually, share repurchases, and a variable dividend that varies with oil prices. We assign ConocoPhillips a narrow economic moat rating, which means we expect the company will effectively compete for at least 10 more years. In particular, the company has done a good job of reducing costs, divesting low-returning assets, and acquiring low-cost production growth. We think ConocoPhillips stock is worth $101.

And the final dividend stock that the best money managers like is Bank of America. Bank of America is one of the preeminent banking franchises in the United States. It has one of the best retail branch networks, is a Tier 1 investment bank, is among the top US credit card issuers, and owns the Merrill Lynch US franchise. We award the bank a wide economic moat rating, and we think its balance sheet is well positioned for interest-rate cuts. We think Bank of America stock is worth $35 per share.

For more stock ideas, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.

Morningstar director Allen Good, senior analyst Matthew Young, and analyst Suryansh Sharma provided the research behind this segment.

Watch We Just Downgraded These 2 Stocks. Is It Time to Sell? for more from Susan Dziubinski.