The 10 Best Dividend Stocks
These undervalued stocks with reliable dividends are worth considering.
At Morningstar, we think that the best dividend stocks aren’t simply the highest dividend stocks. Instead, we suggest investors look beyond a stock’s yield and instead choose stocks with durable dividends and buy those stocks when they’re undervalued.
“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield,” explains Dan Lefkovitz, a strategist for Morningstar Indexes. “Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to screen for dividend durability and reliability going forward.”
David Harrell, the editor of Morningstar DividendInvestor, suggests focusing on companies with management teams that are supportive of their dividend strategies and favoring companies with competitive advantages, or economic moats.
“A moat rating does not guarantee dividends, of course, but we have seen some very strong correlations between economic moats and dividend durability,” Harrell says.
Given ongoing economic uncertainty and stock market volatility, investors looking for the best dividend stocks today might consider adding undervalued, quality dividend stocks to their portfolios. After all, quality companies have the financial stability to maintain their dividends during questionable economic periods, and price risk is reduced when investors can buy the stocks of these companies on the cheap.
10 Best Dividend Stocks Today
To find the best dividend stocks, we turn to the Morningstar Dividend Yield Focus Index. The dividend stocks on this list are among the index’s constituents, and they were also trading below our fair value estimates as of June 13, 2023.
Verizon Communications VZ
Pfizer PFE
Cisco CSCO
Comcast CMCSA
Amgen AMGN
Medtronic MDT
Gilead Sciences GILD
Duke Energy DUK
Blackstone BX
Truist Financial TFC
Here’s a little bit about each cheap dividend stock, along with some key Morningstar metrics. All data is through June 13.
Verizon Communications
Morningstar Rating: 5 stars
Forward Dividend Yield: 7.36%
Industry: Telecom Services
Verizon tops our list of the best dividend stocks. This cheap dividend stock (which is also the third-largest holding in the index) is trading a whopping 38% below our fair value estimate of $57 per share. We think the market is overly focused on Verizon’s challenges to add postpaid consumer wireless customers, says Morningstar director Mike Hodel. Hodel expects margins and cash flow to move higher as network projects are completed and the promotional environment eases. Hodel observes that 50% to 60% of Verizon’s free cash flow is committed to the dividend.
Pfizer
Morningstar Rating: 4 stars
Forward Dividend Yield: 4.07%
Industry: Drug Manufacturers—General
We think Pfizer stock is worth $48 per share, and it currently trades about 16% below that. Pfizer is one of the more widely held dividend stocks among Morningstar’s Ultimate Stock-Pickers—top fund and asset managers who we respect. We don’t think the market fully appreciates the pharmaceutical giant’s ability to offset major patent losses over the next five years, argues Morningstar director Damien Conover. He believes that Pfizer’s dividend is where it should be, as the company targets close to a 50% payout in dividends as a percentage of normalized earnings—on track for a mature industry.
Cisco
Morningstar Rating: 4 stars
Forward Dividend Yield: 3.07%
Industry: Communication Equipment
Cisco is the only technology company on our list of cheap dividend stocks, trading 9% below our $56 fair value estimate. We view Cisco as the dominant force in enterprise networking, and we expect it to maintain that leadership position, says analyst William Kerwin. The company’s core markets offer slow and steady growth, while its newer software and cloud-focused businesses offer upside growth potential. Kerwin calls Cisco’s shareholder return policies “superb,” as the company dedicates more than half of its sizable cash flow to its dividend and share repurchases.
Comcast
Morningstar Rating: 5 stars
Forward Dividend Yield: 2.85%
Industry: Telecom Services
We think Comcast stock is a buy, as shares trade 32% below our $60 fair value estimate. While broadband customer growth is anemic and NBCUniversal is challenged, we think Comcast is well positioned to limit broadband share losses and enjoy solid pricing power, says Hodel. Comcast instituted a dividend in 2008 and has increased its payout by 17% annually, on average, notes Hodel. We think the balance sheet is sound, and shareholder returns are generally appropriate.
Amgen
Morningstar Rating: 4 stars
Forward Dividend Yield: 3.84%
Industry: Drug Manufacturers—General
Amgen joins our list of the best dividend stocks this month: The wide-moat stock currently trades about 17% below our fair value estimate. The company’s portfolio includes innovative drugs in therapeutic areas ranging from cardiology to immunology, notes Morningstar strategist Karen Andersen. We recently raised our fair value estimate on Amgen stock to $268 on the firm’s obesity drug potential. Andersen calls Amgen’s dividend payout “appropriate,” as it along with share repurchases maximize shareholder returns but leave some free cash flow to repay debt or support merger and acquisition activity.
Medtronic
Morningstar Rating: 4 stars
Forward Dividend Yield: 3.22%
Industry: Medical Devices
Medtronic is a cheap dividend stock, trading 23% below our $112 fair value. The largest pure-play medical-device maker is a key partner for its hospital customers, thanks to its diversified product portfolio aimed at a wide range of chronic diseases, explains Morningstar senior analyst Debbie Wang. Medtronic’s plans to spin off its patient monitoring and respiratory innovations businesses will only help the company pivot more toward faster-growing markets, she adds. Medtronic has raised its dividend for 45 consecutive years.
Gilead Sciences
Morningstar Rating: 4 stars
Forward Dividend Yield: 3.82%
Industry: Drug Manufacturers—General
Gilead stock is another cheap dividend stock in the healthcare sector, with its shares trading about 19% below our fair value estimate of $97 per share. The company generates outstanding profit margins with its HIV and HCV portfolio, and its portfolio and pipeline support a wide economic moat rating, says Morningstar’s Andersen. The company has steadily increased its dividend over time; its payout ratio hovers around 50%, which Andersen calls “reasonable.”
Duke Energy
Morningstar Rating: 4 stars
Forward Dividend Yield: 4.43%
Industry: Utilities—Regulated Electric
Duke Energy stock is trading 14% below our $105 fair value estimate. It’s also one of Morningstar’s top 33 undervalued stocks for the second quarter of 2023. One of the largest regulated utilities in the United States, Duke has carved out a narrow economic moat because of the constructive regulatory environments in which much of its regulated business operates and better-than-average economic fundamentals in its key regions, explains Morningstar strategist Andrew Bischof. The company’s balance sheet is strong, and its dividend policy to pay out 65% to 75% of earnings is appropriate, he adds.
Blackstone
Morningstar Rating: 4 stars
Forward Dividend Yield: 4.30%
Industry: Asset Management
Blackstone stock trades 14% below our fair value estimate of $105 and lands on Morningstar’s list of the top 33 undervalued stocks for the second quarter of 2023. One of the world’s largest alternative asset managers, Blackstone has built a team with decades of industry experience in revitalizing companies through cost-cutting, acquisitions, or other strategic initiatives, says Morningstar strategist Greggory Warren. Redemption requests for Blackstone Real Estate Income have ticked up in the past few months, but we had already been projecting higher redemption rates for that trust given higher interest rates, says Warren. We expect the firm to continue to favor dividend payouts versus share repurchases.
Truist Financial
Morningstar Rating: 5 stars
Forward Dividend Yield: 6.42%
Industry: Banks—Regional
Truist Financial is a cheap dividend stock, trading 40% below our fair value estimate of $54 per share. One of the larger regional banks in the U.S., Truist’s first-quarter results showed some—but manageable—pressure on earnings, says Morningstar strategist Eric Compton. Truist has a higher percentage of unrealized losses on its securities portfolios than some other regional banks and is therefore at risk if regulators create new rules to crack down on banks with sizable unrealized losses. We nevertheless expect Truist to remain profitable and cover its dividend, concludes Compton.