10 Best Dividend Stocks to Buy Now: Morningstar

Morningstar advises investors who want to select the best dividend stocks to look beyond yield and buy those with durable dividends when they are undervalued, the firm’s investment analyst Susan Dziubinski writes in a recent blog 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,” Dziubinski’s colleague Dan Lefkovitz, a strategist for Morningstar Indexes, says in the post. “You have to screen for dividend durability and reliability going forward.”

David Harrell, editor of Morningstar DividendInvestor, suggests that investors focus on companies with management teams that support 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 correlations between economic moats and dividend durability,” Harrell says.

Investors derive several advantages by adding undervalued, quality dividend stocks to their portfolios, Dziubinski writes. “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.”

To find the best dividend stocks for investors, analysts turned to the Morningstar Dividend Yield Focus Index, a subset of the Morningstar US Market Index that tracks the top 75 high-yielding stocks that meet the firm’s screening requirements for quality and financial health.

See the gallery for the top 10 dividend stocks, which Dziubinski writes are among the index’s constituents, and were undervalued, trading in the 4- and 5-star range as of Aug. 15. Year-to-date performance is as of Aug. 21.