10 Dividend Stocks That Are Cheap Now: Morningstar

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Dividend stocks have remained remarkably resilient this year, a nice surprise for investors.

The Morningstar Dividend Yield Focus Index, a collection of quality stocks with durable dividends, has risen by nearly 8% in 2022, while the Morningstar U.S. Market Index representing the broader has fallen by more than 16%, Susan Dziubinski, content manager at Morningstar.com, reported in a blog post this week.

According to Dziubinski, energy stocks have outperformed everything else in 2022, buoying the relative performance of dividend stocks as a group. But there’s more to it than that.

Dziubinski noted that dividend stocks have held up much better this year than growth stocks, some of which don’t pay dividends. Her colleagues at Morningstar Indexes, strategist Dan Lefkovitz and analyst Saumya Gattani, argued in a new report that the link between dividend payers and interest rates has been unclear over time.

They wrote: “There have been plenty of periods like 2004–2006, when rates rose but dividend stocks dramatically outperformed growth stocks.”

Dziubinski said that given ongoing economic uncertainty and market volatility, investors might consider adding cheap, quality dividend stocks to their portfolios.

“These 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 for less than what they’re worth,” she said.

Dividend Yield Focus Index

These stocks are constituents of the Morningstar Dividend Yield Focus Index, a subset of the U.S. Market Index, which tracks the top 75 high-yielding stocks that meet analysts’ requirements for quality and financial health. Only securities whose dividends are qualified income are included; REITs are excluded.

Analysts screen companies for quality, using the Morningstar Economic Moat and Uncertainty ratings. Companies must earn a narrow or wide moat rating and an uncertainty rating of low, medium or high; those with very high or extreme uncertainty ratings are excluded.

The 75 highest-yielding stocks that pass the quality screen make it into the index, and constituents are weighted according to the total dividends paid by the company to investors.

See the gallery for 10 cheap, quality dividend stocks, according to Morningstar.