The 10 Best U.S. Dividend Stocks

These undervalued stocks with reliable dividends are worth considering.

Susan Dziubinski 22 February, 2024 | 4:15AM
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What should investors be looking for when it comes to choosing the best dividend stocks?

At Morningstar, we think that the best dividend stocks aren’t simply the highest-yielding dividend stocks. Instead, we suggest that investors look beyond a stock’s yield and instead choose stocks with durable dividends and buy those stocks when they’re undervalued.

“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield,” explains Dan Lefkovitz, a strategist for Morningstar Indexes. “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, the editor of Morningstar DividendInvestor, suggests focusing on companies with management teams that are supportive of their dividend strategies and favoring companies 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.

Given ongoing economic uncertainty and stock market volatility, investors looking for the best dividend stocks might consider adding undervalued, quality dividend stocks to their portfolios. 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.

10 Best U.S. Dividend Stocks to Buy

To find the best U.S. dividend stocks, we turn to the Morningstar Dividend Yield Focus Index. The dividend stocks on this list are among the index’s top constituents, and they were also undervalued, with Morningstar Ratings of 4 and 5 stars as of Feb. 13, 2024.

  1. Exxon Mobil XOM
  2. Verizon Communications VZ
  3. Philip Morris International PM
  4. PepsiCo PEP
  5. Altria Group MO
  6. Bristol-Myers Squibb BMY
  7. Medtronic MDT
  8. Gilead Sciences GILD
  9. Duke Energy DUK
  10. Pioneer Natural Resources PXD

Here’s a little bit about each cheap dividend stock, along with some key Morningstar metrics. All data is through Feb. 13, 2024.

Exxon Mobil

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: High
  • Trailing Dividend Yield: 3.67%
  • Industry: Oil and Gas Integrated

Exxon Mobil tops our list of the best dividend stocks to buy. The oil giant announced last October its plans to acquire Pioneer Natural Resources; Morningstar director Allen Good calls the deal “sound,” noting that the pickup is a lean into the firm’s hydrocarbon-focused strategy. Although Exxon struggled to pay its dividend in 2020, Good says that the firm’s recent actions to reduce costs and capital spending should allow the company to meet its dividend payments. In fact, Exxon recently raised its dividend 4%, reinforcing its status as a dividend aristocrat. We think the stock is worth US$123, and shares trade 18% below that.

Verizon Communications

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 6.57%
  • Industry: Telecom Services

Verizon is a cheap dividend stock, trading a whopping 26% below our fair value estimate of US$54 per share. We think the market is overly focused on Verizon’s challenges to add postpaid consumer wireless customers, says Morningstar director Mike Hodel. Hodel argues that the improving competitive balance in the wireless industry will allow the major U.S. carriers to boost profitability in the years ahead. Verizon’s fourth-quarter results showcased stellar free cash flows. Hodel observes that Verizon directed 60% of 2023′s cash flows to the dividend.

Philip Morris International

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 5.76%
  • Industry: Tobacco

Philip Morris International is the first of two tobacco firms on our list of cheap dividend stocks, trading 13% below our US$103 fair value estimate. The company aims to generate more than half of its revenue from combustibles by 2025, which may be ambitious, says Morningstar director Philip Gorham. Fourth-quarter results were slightly ahead of our expectations, but 2024 guidance suggested a slowdown in adjusted earnings growth. We expect the company to increase the dividend at a mid-single-digit rate, in line with earnings per share growth and a slowdown from its recent double-digit rate.

PepsiCo

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 2.93%
  • Industry: Beverages—Nonalcoholic

Pepsi is another dividend aristocrat on this month’s list of the best dividend stocks to buy. Pepsi generated mixed results in 2023 and issued a cautious outlook for 2024, reports Morningstar analyst Dan Su. We think Pepsi stock is worth US$180, and shares trade below that. Pepsi has raised its dividend for 51 consecutive years, and we expect the payout ratio to remain at 70% and dividend payments to increase 8% annually over the next decade, says Su.

Altria Group

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 9.55%
  • Industry: Tobacco

This month’s highest-yielding stock on our list of the best dividend stocks to buy, Altria is trading 23% below our fair value estimate of US$52 per share. The leading tobacco maker in the United States, Altria is pursuing a multipronged approach to cigarette substitutes, points out Morningstar’s Gorham. The ability to consistently price above its rate of cigarette volume declines should ensure that the company can continue to increase its revenue, earnings, and dividend, he adds. Gorham says that dividends are the company’s top capital-allocation priority, with a stated payout ratio target of 80%.

Bristol-Myers Squibb

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 4.74%
  • Industry: Drug Manufacturers—General

The first of two drugmaker stocks on our list of undervalued dividend stocks to buy, Bristol-Myers Squibb trades 23% below our fair value estimate of US$63. The company has built a strong portfolio of drugs and a robust pipeline through adept acquisitions, explains Morningstar director Damien Conover. Its lineup of patent-protected drugs, entrenched salesforce, and economies of scale underpin its wide moat rating. While the firm’s 30% payout ratio rests below the industry average of 50%, we think the level is about right, as upcoming patent losses will drive the payout ratio closer to average over the next five years, concludes Conover.

Medtronic

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 3.29%
  • Industry: Medical Devices

Medtronic stock trades 25% below our US$112 fair value estimate. The largest pure-play medical-device maker is a key partner for its hospital customers, thanks to its diversified product portfolio aimed at a wide range of chronic diseases, Morningstar senior analyst Debbie Wang explains. Medtronic’s plans to spin off its patient monitoring and respiratory innovations businesses will only help the company pivot more toward faster-growing markets, she adds. Medtronic has raised its dividend for 46 consecutive years, earning it dividend aristocrat status.

Gilead Sciences

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 4.08%
  • Industry: Drug Manufacturers—General

Gilead stock trades 24% below our fair value estimate of US$97 per share. The company generates outstanding profit margins with its HIV and HCV portfolio, and its portfolio and pipeline support a wide moat rating, says Morningstar strategist Karen Andersen. Fourth-quarter results were in line with our expectations. The company has steadily increased its dividend over time; its payout ratio hovers around 50%, which Andersen calls “reasonable.”

Duke Energy

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 4.43%
  • Industry: Utilities—Regulated Electric

Duke Energy stock is trading 18% below our US$112 fair value estimate. One of the largest regulated utilities in the United States, Duke has carved out a narrow economic moat because of the constructive regulatory environments in which much of its regulated business operates and better-than-average economic fundamentals in its key regions, explains Morningstar strategist Andrew Bischof. The company’s balance sheet is strong, and its dividend policy to pay out 65% to 75% of earnings is appropriate, he adds.

Pioneer Natural Resources

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 6.15%
  • Industry: Oil & Gas E&P

Pioneer Natural Resources rounds out our list of the best dividend stocks to buy. Pioneer will be acquired by Exxon Mobil during the first half of 2024 in an all-stock deal. Pioneer Natural Resources stock is trading 17% below our US$274 fair value estimate.

What Is the Morningstar Dividend Yield Focus Index?

A subset of the Morningstar US Market Index (which represents 97% of equity market capitalization), the Morningstar Dividend Yield Focus Index tracks the top 75 high-yielding stocks that meet our screening requirements for quality and financial health.

How are the stocks selected for the index? Only securities whose dividends are qualified income are included; real estate investment trusts are tossed out. Companies are then screened for quality using the Morningstar Economic Moat and Morningstar Uncertainty Ratings. Specifically, companies must earn a moat rating of narrow or wide and an Uncertainty Rating of Low, Medium, or High; companies with Very High or Extreme Uncertainty Ratings are excluded. The index includes a screen for financial health using a distance-to-default measure, which uses market information and accounting data to determine how likely a firm is to default on its liabilities; it is a measure of balance-sheet strength.

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

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Altria Group Inc42.09 USD1.91Rating
Exxon Mobil Corp119.88 USD1.15Rating
PepsiCo Inc174.13 USD1.08Rating
Philip Morris International Inc93.77 USD2.82Rating
Verizon Communications Inc40.49 USD0.90Rating

About Author

Susan Dziubinski

Susan Dziubinski  is director of content for Morningstar.com.

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