Dividend stocks can be a haven in times of market volatility. They often offer steady – sometimes rising – income payments and a potential for capital gains.
If you’re interested in buying some of these stocks, you might have a look at Morningstar’s selection of three top examples from one of its favorite mutual funds -- Vanguard Dividend Growth (VDIGX) -). If you’re more risk averse, you may want to just consider the fund itself.
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It generally holds a modest 40 to 50 stocks. “The managers focus on companies with strong balance sheets, above-average returns on capital, and other competitive advantages,” said Morningstar investment specialist Susan Dziubinski.
The fund also looks for stocks trading at reasonable prices that can grow their dividends at a rate of inflation plus 3%. That leaves the portfolio with mostly blue-chip stocks.
Here’s Morningstar’s terrific troika.
Honeywell, the industrial/technology giant
(HON) -)
Morningstar moat (durable competitive advantage) rating: wide. Morningstar fair value estimate: $228. Thursday price quote: $193.45. Forward dividend yield: 2%.
“Honeywell is one of the strongest multi-industry firms in operation,” wrote Morningstar investment analyst Joshua Aguilar.
“The firm has successfully pivoted to capture multiple ESG (environment, social, governance) trends, including the need to drive energy efficiency, reduce emissions, and e-commerce.”
He said Honeywell will benefit from
- warehouse automation solutions,
- new digital offerings for data analytics in powerplants,
- remote security management,energy savings in buildings, and
- the commercial aerospace recovery.
Over the next five years, Aguilar thinks Honeywell is capable of mid-single-digit revenue growth and 9% to 10% adjusted profit growth.
Nike, the athletic apparel/shoe titan
(NKE) -)
Morningstar moat rating: wide. Morningstar fair value estimate: $136. Thursday price quote: $92.55. Forward dividend yield: 1.2%
Nike is “the leader of the athletic apparel market and will overcome current challenges like inflation, elevated inventory, and uncertain demand for apparel,” wrote Morningstar analyst David Swartz.
“Our wide moat rating is based on its intangible brand asset, as it will maintain premium pricing and generate economic profits for at least 20 years.”
As for shoes, Nike is the largest brand in all major athletic categories in all major markets, he said. It dominates running, basketball and other sports, he noted.
Nike will thrive, despite strong competition, he said.
Ecolab, producer of industrial cleaning products
(ECL) -)
Morningstar moat rating: wide. Morningstar fair value estimate: $210. Thursday price quote: $95.50. Forward dividend yield: 1.2%.
“As the global leader in the cleaning and sanitation industry, Ecolab provides products that help its hospitality, food-service, and healthcare customers do laundry, wash dishes, and maintain regulatory compliance,” wrote Morningstar analyst Seth Goldstein.
“With unmatched scale and a solid razor-and-blade business model, Ecolab's competitive advantages are firmly in place. Ecolab generates over double the revenue of its largest rival.”
Also, Ecolab’s markets are fragmented. It controls only 9% of the $152 billion global market. “With its unrivaled scale and product portfolio, the company is an attractive partner to global hospitality, food-service, and manufacturing firms,” Goldstein said.
The author of this story owns shares of Nike.
