Top 10 Dividend Stocks for Lasting Payouts, According to Morningstar - Business Insider

Investors should look for companies with resilient balance sheets, high cash flow, and low debt and interest payments.

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• A key consideration before buying dividend-paying stocks is whether they can sustain long-term yields. 
• Morningstar's David Harrell says look for companies with strong competitive advantages within their sector.
• This increases the likelihood that they will continue to pay and even increase their yield. 

So far this year, the stock market has been marked by investor excitement around artificial intelligence on one end and recessionary fears on the other. 

Fund managers can't seem to decide what the remainder of the year may look like for stocks. 

A global fund manager survey by Bank of America released on July 18 suggests that sentiment is more bearish, with consensus tilting toward a mild recession in the final quarter of 2023. The leading concerns among respondents cite tail risks around inflation, policy mistakes, and a credit crunch.

Adding dividend-paying stocks to a portfolio is one way to navigate the bearish sentiment. Historically, these cash-flowing securities tend to outperform their counterparts during economic downturns, said Morningstar's Susan Dziubinski in a note on Tuesday. Dividend-paying stocks experience less volatility because investors often hold on to them for their yields. They also tend to have stronger balance sheets and better cash flow, which enables them to make shareholder payouts. 

But seeking out the highest payers isn't always the best approach. A key consideration before buying dividend-paying stocks is whether they can sustain long-term yields. While there is no way to guarantee future returns, Morningstar's editorial director, David Harrell, says that looking for companies with strong competitive advantages within their sector increases the chances that those yields will continue and even increase over time. 

He noted that US stocks tracked by Morningstar, which had wide moats in the past three years, were not only least likely to cut down on their payouts but most likely to increase them. The opposite was true for companies with no competitive advantage, or moat: they were most likely to cut their yields. Dan Lefkovitz, a strategist at the financial services firm, came to the same conclusion after conducting a 2020 study that looked at a broader range of global stocks. 

Harrell added that investors should also look for companies with resilient balance sheets, high cash flows, and low debt and interest payments. 

Finally, he recommends looking at a company's historical performance during different economic conditions, specifically, whether it sustained dividend payouts during economic downturns or sector-specific turmoil.

Below is Morningstar's list of the 10 best dividend-paying stocks with strong financials. These stocks have a four-star Morningstar rating except for Wells Fargo, Verizon, and Comcast, which have five-star ratings. Additionally, Morningstar rated their competitive edges: a narrow moat means they can keep competitors at bay for over 10 years, and a wide moat implies 20 years. 

1. Verizon Communications

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Ticker: VZ

Morningstar Economic Moat Rating: Narrow

Morningstar Uncertainty Rating: Low

Forward Dividend Yield: 7.09%

Industry: Telecom Services

2. Pfizer

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Ticker: PFE

Morningstar Economic Moat Rating: Wide

Morningstar Uncertainty Rating: Medium

Forward Dividend Yield: 4.52%

Industry: Drug Manufacturers—General

3. Comcast

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Ticker: CMCSA

Morningstar Economic Moat Rating: Wide

Morningstar Uncertainty Rating: Medium

Forward Dividend Yield: 2.78%

Industry: Telecom Services

4. Wells Fargo

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Ticker: WFC

Morningstar Economic Moat Rating: Wide

Morningstar Uncertainty Rating: Medium

Forward Dividend Yield: 2.95%

Industry: Banks—Diversified

5. Medtronic

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Ticker: MDT

Morningstar Economic Moat Rating: Wide

Morningstar Uncertainty Rating: Medium

Forward Dividend Yield: 3.20%

Industry: Medical Devices

6. Gilead Sciences

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Ticker: GILD

Morningstar Economic Moat Rating: Wide

Morningstar Uncertainty Rating: Medium

Forward Dividend Yield: 3.94%

Industry: Drug Manufacturers—General

7. Dow

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Ticker: DOW

Morningstar Economic Moat Rating: Narrow

Morningstar Uncertainty Rating: Medium

Forward Dividend Yield: 5.29%

Industry: Chemicals

8. WEC Energy

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Ticker: WEC

Morningstar Economic Moat Rating: Narrow

Morningstar Uncertainty Rating: Low

Forward Dividend Yield: 3.57%

Industry: Utilities—Regulated Electric

9. PPL Corp

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Ticker: PPL

Morningstar Economic Moat Rating: Narrow

Morningstar Uncertainty Rating: Low

Forward Dividend Yield: 3.66%

Industry: Utilities—Regulated Electric

10. Kellogg

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Ticker: K

Morningstar Economic Moat Rating: Wide

Morningstar Uncertainty Rating: Medium

Forward Dividend Yield: 3.60%

Industry: Packaged Foods

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