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10 Top Dividend Stocks Fund Managers Like: Morningstar

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Morningstar analysts consider the majority of sectors undervalued today, based on their aggregate price-to-fair-value estimates, with investors continuing to focus on “pandemic-proof” ones, such as consumer defensive and health care, Verushka Shetty and Eric Compton wrote in a blog post this week.

Searching for yield in this environment can be risky, they write. Price risk is elevated; so is the risk that companies may be unable to sustainably maintain current dividends because of economic strain.

Morningstar screened for top dividend-paying stocks among the holdings of its Ultimate Stock-Pickers list, looking for the highest-quality names these top managers currently hold. 

The list consists of 25 separate investment managers, 21 of whom oversee mutual funds covered by Morningstar’s manager research group and four who run investment portfolios for large insurance companies.

Morningstar analysts take an initial list of the dividend-paying stocks held in the Ultimate Stock-Pickers portfolios, then cull it by concentrating on companies they believe have sustainable competitive advantages that should allow them to generate the excess returns necessary to maintain their dividends over the longer term. 

Analysts look for companies about whose future cash flows they have lower uncertainty. They accomplish this by screening for holdings that are held by five or more of Morningstar’s top managers, are yielding more than the S&P 500, have wide or narrow economic moats and have uncertainty ratings of either low or medium.

For the current crop of top dividend-yielding stocks, the analysts found the average price to fair value estimate to be 0.9, indicating that they view these stocks as currently undervalued. The top 10 dividend-yielding stocks are overweight in the consumer defensive sector.

See the gallery for the top 10 dividend-yielding stocks. The stock price and Morningstar rating data are as of Sept. 16.