Top 10 Dividend Stocks to Buy Now: Morningstar

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With markets holding their breath over an uncertain economy, an upcoming election and an expected Federal Reserve rate cut, a Bank of America equity and quant analyst is urging investors to consider dividend stocks.

“I know this is the most boring call of all time, but sometimes boring is good,” Savita Subramanian said in an interview with Bloomberg Television on Monday.

But what should investors look for in a dividend stock?

Morningstar investment specialist Susan Dziubinski started off a recent blog post with this question.

Not dividend stocks that are simply the highest-yielding ones, Dziubinski says, but stocks with durable dividends. And investors should buy those stocks when they are undervalued. She suggests 10 stocks that are top constituents of the Morningstar Dividend Yield Focus Index and were undervalued as of Sept. 6.

“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield,” Dan Lefkovitz, a strategist for Morningstar Indexes, said in the post. “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, editor of Morningstar DividendInvestor newsletter, further suggests that investors focus on companies with management teams that are supportive of their dividend strategies and favor those with competitive advantages, or economic moats. 

“A moat rating does not guarantee dividends, of course, but we have seen some very strong correlation between economic moats and dividend durability,” Harrell says.

See the accompanying gallery for Morningstar’s top 10 dividend stocks. Year-to-date performance is as of Sept. 11.

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