Dividend stocks are an appealing option if you’re looking to increase your equity exposure, particularly when the overall market is quite volatile.
These stocks can offer both regular income and the potential for capital gains.
Morningstar has put together a list of top dividend stocks held by its “ultimate stock pickers.” These are 22 money managers who oversee mutual funds that Morningstar analysts cover and four who run the investment portfolios of large insurers.
'Highest-Quality Names Held With Conviction'
“We try to find the highest-quality names that are currently held with conviction by our top managers,” Morningstar analysts write.
“We do this by taking an initial list of the dividend-paying stocks held in our Ultimate Stock-Pickers’ portfolios," the investment researcher says.
It then narrows down the list "by concentrating on firms that we believe have maintainable competitive advantages that should allow them to generate the excess returns necessary to continue their dividends over the longer term.” Morningstar calls these competitive advantages “moats.”
In addition, “we look for firms with lower uncertainty on our analysts’ part regarding future cash flows,” Morningstar said.
“We accomplish this by screening for widely held holdings (by five or more of our top managers) that are yielding more than the S&P 500, have wide or narrow economic moats, and have uncertainty ratings of either low or medium.”
Top 10, in Order of Trailing 12-Month Dividend Yield
Pioneer Natural Resources (PXD), an oil and gas fracker. Moat: narrow. Morningstar fair value estimate: $181. March 27 closing price: $194.40. Dividend yield: 14.01%.
Altria (MO), the tobacco giant. Moat: wide. Morningstar fair value estimate: $52. March 27 closing price: $44.30. Dividend yield: 10.43%.
U.S. Bancorp (USB), the biggest regional bank. Moat: wide. Morningstar fair value estimate: $58. March 27 close: $35. Dividend yield: 6.77%.
Philip Morris International (PM), another tobacco giant. Moat: wide. Morningstar fair value estimate: $103. March 27 close: $92.60. Dividend yield: 5.46%.
PNC Financial Services (PNC), another large regional bank. Moat: narrow. Morningstar fair value estimate: $175. March 27 close: $125. Dividend yield: 4.8%.
CME Group (CME), the financial-exchange owner. Moat: wide. Morningstar fair value estimate: $215. March 27 close: $185. Dividend yield: 4.65%.
Medtronic (MDT), a major medical device maker. Moat: wide. Morningstar fair value estimate: $112. March 27 close: $79.65. Dividend yield: 4.21%.
Pfizer (PFE), the health-care and pharma titan. Moat: wide. Morningstar fair value estimate: $48. March 27 close: $40.20. Dividend yield: 4%.
Fidelity National Information Services (FIS), a payment processing company. Moat: narrow. Morningstar fair value estimate: $83. March 27 close: $50.20. Dividend yield: 3.84%.
Morgan Stanley (MS), the investment banking stalwart. Moat: narrow. Morningstar fair value estimate: $91. March 27 close: $84.65. Dividend yield 3.57%
The author of this story owns shares of U.S. Bancorp, CME, Pfizer and Medtronic.
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