Given the current uncertainty in the equity market, now could be a good time to hunt for dividend stocks, which offer the potential of solid income and capital gains.
If you do opt for dividend stocks, keep in mind that “the best dividend stocks aren’t simply the highest dividend stocks,” writes Morningstar investment specialist Susan Dziubinski.
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“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.”
Also, focus on companies with competitive advantages, says David Harrell, editor of Morningstar DividendInvestor.
Dziubinski selected the “10 best dividend stocks today” from the Morningstar Dividend Yield Focus Index.
That benchmark is designed to include stocks with attractive dividend yields and strong financial quality. All 10 choices trade below Morningstar’s fair-value estimates.
First Five on Morningstar's Dividend List
1. Verizon Communications (VZ), the telecom giant. Morningstar moat (durable competitive advantage rating): narrow. Morningstar fair value estimate: $57. Friday’s closing price: $36.05. Forward dividend yield: 7.2%.
The fair-value estimate “assumes Verizon accepts its fate as one of three strong but relatively undifferentiated U.S. wireless carriers,” wrote Morningstar analyst Michael Hodel.
2 Pfizer (PFE), the drug titan. Morningstar moat: wide. Morningstar fair value estimate: $48. Friday’s closing price: $36.77. Forward dividend yield: 4.5%.
“Despite the pressures on Pfizer’s long-term growth, we are encouraged by continued development in the pipeline,” wrote Morningstar analyst Damien Conover. “We remain most bullish on several near-term [drug] launches.”
3. Cisco Systems (CSCO), the networking technology stalwart. Morningstar moat: wide. Morningstar fair value estimate: $56. Friday’s closing price: $49.13. Forward dividend yield: 3.2%.
“Looking past rocky short-term demand, we continue to see Cisco benefitting from healthy long-term networking spending and offering sticky solutions,” wrote Morningstar analyst William Kerwin.
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4. Comcast (CMCSA), the media/telecom/entertainment company. Morningstar moat: wide. Morningstar fair value estimate: $60. Friday’s closing price: $41.18. Forward dividend yield: 2.8%.
“Overall, we expect Comcast will deliver modest growth with strong cash flow for the foreseeable future,” Morningstar’s Hodel wrote.
5. Medtronic (MDT), the medical-device provider. Morningstar moat: wide. Morningstar fair value estimate: $112. Friday’s closing price: $89.33. Forward dividend yield: 3%.
“Medtronic's standing as the largest pure-play medical-device maker remains a force to be reckoned with in the medical-technology landscape,” wrote Morningstar analyst Debbie Wang.
Second Five on Morningstar Dividend List
6. Gilead Sciences (GILD), the biotechnology company. Morningstar moat: wide. Morningstar fair value estimate: $97. Friday’s closing price: $78.85. Forward dividend yield: 3.8%.
7. Duke Energy (DUK), the utility titan. Morningstar moat: narrow. Morningstar fair value estimate: $105. Friday’s closing price: $92.51. Forward dividend yield: 4.4%.
8. Blackstone (BX), the private-equity heavyweight. Morningstar moat: narrow. Morningstar fair value estimate: $105. Friday’s closing price: $83.08. Forward dividend yield: 4.7%.
9. Truist Financial (TFC), the large regional bank. Morningstar moat: narrow. Morningstar fair value estimate: $54. Friday’s closing price: $29.70. Forward dividend yield: 7%
10. Phillips 66 (PSX), the oil refiner. Morningstar moat: narrow. Morningstar fair value estimate: $116. Friday’s closing price: $94.94. Forward dividend yield: 4.4%.
The author of this story owns shares of Verizon, Pfizer, Cisco, Comcast, Medtronic, Duke and Blackstone.
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