Given all the recent turmoil in the financial markets, you may be interested in the regular income stream and potential capital gains of dividend stocks.
Vanguard High Dividend Yield Index ETF (VYM) after slipping 7% year to date, outperforming the S&P 500, which fell 20%.
Morningstar has compiled a list of the top 10 dividend stocks that are widely held by the “ultimate stock pickers” – 26 top money managers.
The research firm screens companies it believes have sustainable competitive advantages. Those are benefits that “would allow them to generate the excess returns needed to maintain their dividends over the long term,” according to commentary from Morningstar analysts Verushka Shetty and Eric Compton.
“We are also looking for businesses where our analysts have lower uncertainty about their future cash flows,” the analysts said.
“We accomplish this by screening for holdings that are widely held by … our top managers, that are outperforming the S&P 500, have broad or narrow economic interests, and have have low or medium uncertainty ratings.”
The Top 10 List
Morningstar’s list includes:
1. Dollar General (DG) , which holds seven funds. Dividend yield: 0.9%.
2. Verizon (VZ) , which holds seven funds. Dividend yield: 6.4%.
3. Automatic Data Processing (ADP) , holding four funds. Dividend yield: 1.8%.
4. Gilead Sciences (DISEASE) , holding four funds. Dividend yield: 4.5%.
5. Colgate-Palmolive (CL) , holding four funds. Dividend yield: 2.5%.
6. AstraZeneca (AZN) , holding four funds. Dividend yield: 2.5%.
7. Sysco (SYY) , holding four funds. Dividend yield: 2.5%.
8. GSK (GSK) , holding four funds. Dividend yield: 8.2%.
9. Altria (MO) , holding four funds. Dividend yield: 8.8%.
10. Archer-Daniels Midland (ADM) , which is held by three funds. Dividend yield: 1.8%.
Morningstar’s View of Dollar General
Morningstar analyst Zain Akbari assigns a narrow rating to the company and places a fair value on the stock at $227. It recently traded at $241.
“Despite declining competition, which we believe is reducing its competitive edge, Dollar General’s network of advantageously located stores, low-priced merchandise, and leveraged supply and distribution capabilities should allow it to deliver economic results,” he wrote in a commentary.
The company benefits from a focused footprint in sparsely populated areas that cannot support many retailers, Akbari said.
Morningstar’s portrayal of Verizon
Morningstar analyst Michael Hodel gives Verizon a narrow rating and places a fair value on the stock at $59. It recently traded at $39.48.
“Verizon has taken steps to ensure it remains in good standing in the traditional wireless business,” he wrote in a commentary.
“We believe Verizon will deliver consistent results over the long term, but growth is likely to be modest. AT&T’s competitors (T) and T-Mobile (TMUS) offer and sell comparable services at similar prices, and we expect these to erode Verizon’s market share over time.”