3 Stocks to Buy With Reliable Dividends While They’re Still Cheap

Susan Dziubinski: Hello, and welcome to The Morning Filter. I’m Susan Dziubinski with Morningstar. Every Monday on The Morning Filter, we cover what investors should have on their radars this week, some new Morningstar research, and a few stock ideas to consider.

Now, my colleague Dave Sekera is on vacation this week, so I’ll cover some of the ground that Dave normally does. Then we’ll share a couple of interviews with Morningstar strategists about dividend-paying stocks. And then I’ll close with some stock picks for the week.

So to kick off, what should investors have on their radar this week when it comes to the economy? Well, the Consumer Price Index, or CPI, report comes out on Wednesday. Investors will be closely watching these figures this week after recent concerns about whether the US economy could enter a recession and whether the Federal Reserve should have already begun cutting interest rates. If the number comes in hotter than expected, we could see some market volatility as a result.

On the earnings front, some notable companies reporting earnings this week include Home Depot and Walmart, both of which will provide some insight into the state of the consumer. Morningstar thinks both stocks look overvalued heading into earnings. And two wide-moat tech giants, Cisco and Applied Materials, report this week, too. We think both look about fairly valued ahead of earnings.

Moving on to some new research from Morningstar, I’d like to flag some commentary from Morningstar about a few companies that reported earnings last week. Morningstar left its $115 fair value estimate on Disney unchanged after the company reported that its streaming business turned a profit for the first time and box office success drove licensing products. But the results from its experiences segment were soft as kind of expected. The stock looks 25% undervalued.

Now, obesity-drug stock darling Novo Nordisk was down about 8% after the company reported its weight loss drug, Wegovy, missed sales expectations. Morningstar left its $86 fair value estimate intact because the slight miss wasn’t enough to lead to a change to our full-year expectations. Novo looks 55% overvalued to us today.

Eli Lilly rallied after reporting better-than-expected results for the second quarter on the back of outstanding sales from diabetes treatment drug Mounjaro and weight loss drug Zepbound. Morningstar raised its fair value estimate for the wide-moat stock by a little over 7% to $580. And even after that fair value increase, shares still look 54% overvalued.

And lastly, one of Dave’s stock picks for the third quarter, Fortinet, was up 25% after earnings. The cybersecurity vendor beat the market’s expectations on both revenue and earnings. Morningstar stood by its $77 fair value estimate on the stock, and the shares look about fairly valued after the rally.

Viewers who’d like to read more about what Morningstar’s analysts thought about the earnings of these companies and others can click on the link beneath this video to access Morningstar’s earnings coverage.

So moving on, this week we’ve produced a special segment for viewers focused on dividend stocks. I interviewed two of my colleagues recently about the topic. First, I sat down with Dan Lefkovitz. Dan’s a strategist with Morningstar Indexes, and he’s co-host of The Long View podcast. And we talked about his new paper, which is called Are Better Days Ahead For Dividend Stock Investors?

I also had a conversation with David Harrell, who’s editor of the Morningstar DividendInvestor newsletter. David and I talked about some of the Big Tech companies that are declaring dividends for the first time this year and whether investing in dividend aristocrats is a good idea.

So I’m going to take a coffee break here to listen to what Dan and David had to say.

David, I’d like to talk with you about a couple of your recent cover stories from Morningstar DividendInvestor. The first one is about the expanding universe of dividend-paying stocks and what that means for investors. First, remind us about some of the big growth companies that have started paying dividends in 2024.

David Harrell: Sure. So we saw a lot of headlines this year about really big names that didn’t pay dividends, and they’re now paying quarterly dividends. I think Meta Platforms was first. Then Alphabet announced. Then we also had Salesforce and Booking Holdings have initiated dividends this year.

And there was even some talk, some people were expecting Amazon to follow suit, which obviously it did not. So a big change in terms of if you look at the largest companies in the country, pretty much all of them, with the exception of Amazon and Berkshire, are paying dividends of some sort now.

Dziubinski: Now, you point out in your article that for these companies, this is actually a big deal because management is making a significant change to its approach to capital allocation. So explain what that means.

Harrell: Capital allocation is basically what a company does with its cash. And as you know, a profitable company can do multiple things. They can reinvest in their business. They can use that cash to make acquisitions. If they have debt, they can pay down their debt. The last thing is they can return some of that cash to shareholders.

Now, there’s really two primary ways of doing that, and one is indirectly by repurchasing their own shares. And by doing that, they’re spreading their future earnings across fewer shares. So that’s beneficial to existing shareholders. And then, as we’ve seen with some of these big names, you can initiate a dividend. You can start paying out that cash on a regular, ongoing basis.

And that is a big change, though, because when you initiate a dividend, you’re really making a commitment to the market and your shareholders that you’re going to continue to pay these dividends. Like you repurchase a bunch of shares, billions of dollars of shares in one year, and you don’t do any repurchases the next year, no one is faulting you for that. But once you initiate a dividend, if you suspend or cut that dividend—for a large-cap company, it’s going to be headline news.

Dziubinski: Now, this decision has implications for investors who own the stocks of these companies in their taxable accounts. Walk us through that.

Harrell: Sure. So if you’re filing jointly and your adjusted gross income is above $89,000 a year, I believe, for 2023 at least, qualified dividends, you’re going to pay taxes on those. So the knock on dividends is they’re an inefficient way of returning cash to shareholders because you’re getting that check or it’s showing up in your cash account in your brokerage firm, and unless it’s a tax-deferred account or your AGI is low enough, you’re going to pay taxes on that.

Whereas if the company returns the cash via buybacks, there’s no short-term tax impact or implication for you. Hopefully there’s some share price appreciation that happens because of these buybacks, so you benefit from that, but you’re not paying taxes on that until you ultimately sell those shares of the stock.

So for investors who maybe weren’t seeking current income, they might view this as a negative because now they have this taxable component. And as you know, when dividends are paid, share price is reset, so you’re losing a little bit of your capital, what otherwise would’ve been capital appreciation, and now you have this taxable effect.

Dziubinski: We know the payouts, because of the size of these companies, are large in terms of the total cash that’s going to be distributed, but they aren’t actually terribly meaningful in terms of yield. So none of these stocks are necessarily going to be appealing to those investors who are in fact looking for dividend-paying stocks. Fair to say?

Harrell: Yeah, very fair to say. So what we see right now, I believe both Meta and Alphabet are yielding less than 0.5%. Salesforce and Booking are yielding a little bit more, but it’s below 1%. And if we look at how they’re returning cash now, the amount of cash that Meta will return in 2024 is a little over $5 billion, which is a lot of money. But at the end of 2023, they had authorization to spend more than $80 billion on repurchases.

So again, they’re making these regular dividend payments. The stocks have a yield now. In some cases, it’s broadening the potential ownership base of the stock because some institutional investors are restricted to only owning dividend-paying stocks. So there’s some investors now who can purchase these shares who couldn’t purchase it before.

But it’s not, as you say, if you’re the type of investor who’s looking to generate current income from your portfolio, these yields are not … These are below what most income-seeking investors are looking for.

Dziubinski: Got it. What could this rash of these growth companies starting to pay dividends, what do you think that could perhaps mean for dividend stock investors down the road in terms of, say, the makeup of some of the more dividend-heavy indexes?

Harrell: Well, when we look at dividend stocks versus the broad market, there’s this horse race that gets attention sometimes: “Dividend stocks are underperforming” or “dividend stocks outperformed this year.” And it’s not surprising that you have a divergence of performance because as a group, anytime you have a subset of the broad market, you’re going to see differences in performance for any given time period.

And particularly in the past few years when we’ve seen so much of the overall market’s return being driven by some of these large-cap growth companies, and some of them didn’t pay dividends, they’re not showing up in your dividend indexes and such, so a fair amount of divergence. Now, what we’re going to see going forward, and I guess to jump back a little bit, when people talk about dividend investing, there’s really two things that they’re talking about and sometimes it’s investing in dividend stocks for current income versus dividend growth as an investment strategy.

And that’s where you’re less concerned about current yield, but more that you’re looking at the rate at which companies are increasing their dividends as sort of a signal that like, OK, these companies are growing their earnings, growing their earnings steadily, allowing them to increase their dividends. So there’s stocks that might not be that appealing from a yield standpoint, but they’re going to show up in these dividend growth indexes and maybe these dividend growth investment strategies.

And my guess is that now that we’re seeing more of the large-cap companies that weren’t paying dividends becoming dividend-payers, assuming that they are able to grow those dividends, and I think they will, and if they’re growth companies, so even if they just grow their dividends at the rate of earnings increase, they’re likely to start showing up in those dividend growth indexes in some of these strategies.

So maybe we’ll see a little more convergence of performance between the broad market and some of these dividend growth strategies just because they might not hold some of these names, which they didn’t hold before.

Dziubinski: Yeah, time will tell.

Harrell: Yeah, we’ll see.

Dziubinski: All right. So let’s move on to topic number two, your other cover story that we wanted to cover today, and it was about dividend aristocrats, which there’s a lot of interest in, David. So let’s start at the beginning. What is a dividend aristocrat, and why do investors seem to be so attracted to them?

Harrell: Right. So a dividend aristocrat, the term is used generically for any firm that has increased its dividend payout per share for 25 consecutive calendar years. So each year for 25 years running without forgoing a raise or reducing its dividend, the company has increased its payout.

The term is also trademarked by S&P, and they have a S&P Dividend Aristocrats Index, and that index is restricted only to stocks that are constituents of the S&P 500 index. And I believe there are currently 66 constituents of that index, so 66 stocks from the S&P 500 qualify currently as dividend aristocrats.

Dziubinski: Got it. Now, in your research, you talked a little bit about some of the quirks of the dividend aristocrats, some maybe that qualify as dividend aristocrats that maybe people wouldn’t think of as dividend aristocrats, and then some that aren’t included on the list that people might be like, “hmm, why isn’t that one an aristocrat?”

Harrell: First of all, getting back, I said every year they’ve made a raise—and that’s not actually required because if you think about the timing of the dividend increase can matter, because really the measure is: Did the total dividends per share increase in each calendar year? So if a company generally increases its dividend halfway through the year, when it makes that increase, it has one or two dividend payments for year one. Well, that’s more than the previous year, so that counts.

Let’s say they skip a dividend increase the next year, but they’re making four dividend payments at the higher rate, so the total is larger. So then sometime in that third year, they need to make at least a modest increase, and that will give them credit for another year of dividend growth. So sometimes they’ll play around a little bit, or they’ll skip a year, or they can make a pretty small one. But then getting back to your question, there are some quirks that I noticed.

One is Kenvue, which is the spinoff of Johnson & Johnson’s Consumer Health Division, has only paid out three dividends so far. It’s in the S&P 500 Dividend Aristocrats Index because they’re giving it credit for all of the Johnson & Johnson dividend increases over the years.

Conversely, Altria, which is the tobacco company, some dividend trackers will say, “Well, it’s got 50 plus years of dividend increases.” S&P, for whatever reason, doesn’t see it that way, and it’s not in their aristocrats index even though it is an S&P 500 constituent. It was spun off from Philip Morris in 2008. And for whatever reason, they’re not giving that firm the credit for the longer dividend history.

Dziubinski: Interesting. So talk a little bit about the complexion of the dividend aristocrats list in terms of sectors and quality.

Harrell: In terms of quality, of the 66 constituents, 59 are covered by Morningstar analysts. They give wide moat economic ratings to 30 of them. They give narrow moat ratings to 21 of them, and then eight received a no-moat rating. So as a group, we’re looking at fairly high-quality companies—that the majority that are covered by Morningstar analysts, the vast majority are receiving narrow or wide economic moat ratings, which means the analysts believe they have this moat they can defend against competition for at least 10 or 20 years. So high-quality companies that way.

In terms of sector makeup, what we see compared to the broad market, we see a larger number of basic materials, industrials, and then of course, consumer defensive firms where we often see a lot of dividend-paying stocks. Where we see less exposure than the overall market is communication services and technology, which isn’t surprising, though.

If we’re here in 2049 updating this story, maybe some of the stocks we talked about earlier will have made 25 years of increases. So maybe that will be pushing the exposure of the aristocrats closer to that at the broader market.

Dziubinski: David, what’s the relationship, if any, between dividend aristocrats and attractive yields?

Harrell: Your initial thought might be that these companies have increased their dividends for 25 years in a row, they must be high-yielding companies. And there are companies on that list with very attractive yields. But on average, the 66 firms on the S&P 500 list, the average yield is just 2.4%. You have a number of stocks actually yielding below 2% or even below 1%, and there’s one stock on the list that has a 0.3% field.

So on average, they’re not a high-yielding group of stocks. I mean, 2.4% is a very respectable yield, certainly higher than that of the broad market, but it’s not perhaps the level that if you are an income-focused investor, that’s what you’re looking for for your portfolio. You’re probably looking for something more in a 3% to 4% range overall for a portfolio.

Dziubinski: Now, talk a little bit about dividend security in the aristocrats. Are the dividend aristocrats, because they’ve grown their dividends or increased their dividends over 25 years or more, are they any less likely to cut their dividends?

Harrell: Well, there’s no guarantee, and we certainly have seen cuts. But in general, most of these companies, when you see how they communicate this to shareholders, either in the annual letter or in earnings calls, these firms that have increased their dividends for 25, 30, 35 years or more, they will often tout that. They’re very proud of this dividend streak. “Whatever, 33rd year in the row, we’ve increased our dividend.” Now, again, that’s no guarantee if the earnings … You have to have the earnings in order to support that dividend.

But I think firms that are touting or proud of these records are probably a little more likely to use a dividend cut almost as a last resort. And we did see in 2020, for example, which is really when we saw a huge number of dividend cuts, some companies proactively at the beginning of the pandemic, some firms, because they received stimulus money from the federal government, they were mandated to suspend their dividends. We saw a large number of dividend cuts. I think more than 60 S&P 500 constituents ended up paying out less than dividends in 2020 than they had in 2019.

But the dividend aristocrats as a group did very well during 2020, and there was only a single dividend aristocrat that actually lost its status that year, and that was Ross Stores, which decreased its dividend so got removed from the list. So anecdotally, or at least 2020, the dividend aristocrats held up pretty well. But again, it’s not any guarantee. You don’t have to go too far back. A couple of years ago, AT&T cut its dividend.

And we’ve already seen two dividend cuts in 2024 for dividend aristocrats. Walgreens Boots Alliance reduced its dividend. And then most recently, 3M, a very well-known company, long-term dividend payer, did reduce its dividend.

So not guaranteed, but in terms of dividend security, they have fared better, particularly in the 2020 example, than the broader market.

Dziubinski: Based on your research you’ve done here, what are your key takeaways for stock investors who are interested in buying the dividend aristocrats?

Harrell: I guess dividend aristocrat status by itself, it’s generally a positive thing. It’s like, OK, here’s a company. It’s a profitable company, has been able to return cash to shareholders for 25-plus years, and increased in all of those years or almost all of those years. So it’s a good thing. But again, if you’re looking for current income, aristocrat status does not mean high yield.

And even if you are looking for income, no one would ever here recommend buying a stock based on its yield alone. You’re always going to want to look at its valuation, what’s the price relative to its Morningstar fair value estimate or other valuation metrics, and what are the prospects for its earnings growth and continued dividend growth as well.

It might be one of those things worth checking out, but certainly buying it simply because of its dividend aristocrat status alone without considering its yield, its valuation, and whatever future earnings and future earnings growth would probably be a mistake.

Dziubinski: Right. Well, thanks for your time. Good talking to you, David.

Harrell: Great to be here.

Dziubinski: Now, Dan, you recently published some comprehensive research about dividend stocks, and you called this research Are Better Days Ahead For Dividend Investors, and viewers are going to be able to download your report beneath this video. What prompted you to publish a report with that title at this point in time?

Lefkovitz: Yeah. Well, it’s been a really interesting year for dividends, Susan, sort of the best of times, worst of times. So we’ve had some big names, of course, initiate regular cash payments to shareholders: Meta, Alphabet, Salesforce, Booking.com all announced dividends for the first time, which is a big deal. It validates the dividend as a mechanism for returning cash to shareholders.

It’s big in dollar terms, but it’s actually really small in yield terms, so looking at the dividends compared to their share prices. And that’s reflective of the market overall. If you look at the Morningstar US Market Index, the yield is only 1.3%. That’s really puny from an income perspective when you look at what you can get from cash and bonds.

Then on the performance side, our dividend indexes have underperformed the broad US equity market for the first seven months of 2024. They underperformed in ‘23, the trailing five year, the trailing 10 year. The action has really been on the growth side of the market with AI-related stocks. We had the “Magnificent Seven.” We had the FANG stocks before them.

So dividends as a strategy, dividend-paying stocks have really lagged. And then we’ve also had some big dividend cuts this year, which illustrates one of the big risks for equity-income investors.

Dziubinski: Let’s unpack your research because you cover a lot of ground in what’s only nine or 10 pages, so it’s pretty remarkable. First is the relationship between dividend stock performance and interest-rate movements. Now, the relationship that a lot of us are so familiar with isn’t really cut and dried. You really parsed the returns.

But first, remind viewers: What is the traditional thinking on what the relationship is between interest-rate movements and dividend-paying stocks?

Lefkovitz: So the conventional wisdom, you can call it a rule of thumb, is that rising rates, high rates are bad for dividend-paying stocks because they raise the yields on cash and bonds. So from an income perspective, they diminish the attractiveness of dividend-paying stocks. And then they also raise the borrowing costs for indebted companies, sectors like utilities and telecoms, which are dividend-rich.

Dziubinski: Now you’ve then gone in and you’ve really done a deep dive into this data, looking at the actual performance of dividend-paying stocks versus interest rates over a course of many, many time periods. What did you find?

Lefkovitz: The historical record is really mixed when it comes to the relationship between rates and the relative performance of dividend-payers. There certainly have been times where dividend-payers have underperformed in rising-rate environments, but there have also been times where they’ve outperformed in rising-rate environments. There have been times where dividend-paying stocks have underperformed in falling-rate or low-rate environments. So we think this relationship is not as clear-cut as maybe the conventional wisdom lets on.

Dziubinski: And talk specifically a little bit about that recent performance, which you alluded to. We’ve been looking at a period of time where we had first rising interest rates and then higher for maybe longer than some people expected. How did dividend stocks really do over that stretch from when the Fed started raising rates?

Lefkovitz: March 2022, I believe, is when the Fed started hiking, and we had the most significant interest-rate hikes in a generation. In 2022, some of our dividend indexes actually were in positive territory, even as the overall US equity market was down and bond market was cratering. So that was a year when the conventional wisdom was really challenged when it came to rates and dividend-payers. Now since, ‘23 and so far in 2024, dividend-payers have lagged, but I think that there’s a lot of other things going on, sector effects and stock-specific factors.

Dziubinski: Now talk about that. So talk about that a little bit, Dan. I mean, interest rates are only one factor that may or may not even play a role in the performance of dividend-paying stocks. What else has been at play here?

Lefkovitz: In 2022, let’s start there, the energy sector was a big part of the story. Energy was the best-performing section of the equity market. Energy companies are often rich in dividends. They really boosted our dividend indexes that year. The price of oil went through the roof after Russia invaded Ukraine. We also had some defensive sectors like healthcare and utilities hold up relatively well when the market was down.

Tech was the worst-performing section of the market. Tech tends to be dividend-light. Now, starting in late ‘22 and into ‘23 and ‘24, AI really has been the big theme that has consumed markets. Nvidia, of course, has been the poster child for AI-related stocks that have led the market. Nvidia does pay a dividend, but it is pretty puny.

Dziubinski: Puny.

Lefkovitz: Yeah.

Dziubinski: So then, Dan, what are the takeaways for investors after you’ve done this deep dive into the performance of dividend stocks? What expectations should dividend stock investors really have for either their dividend stock funds or the individual stocks that they own?

Lefkovitz: When we look at the cyclical behavior of our dividend indexes over time, any deviation from the broad market is going to go through cycles of underperformance and outperformance that relates to not just dividend-paying stocks, but growth and value, small cap and large cap, factors like quality or low volatility.

You have to be able to stick with it through ups and downs if you want to be successful. Now, if you look at the very long-term track record of dividend-paying stocks, they have done quite well. They’ve outperformed the market. The high-yield section of the equity market has outperformed the broad market. Dividend payers have tended to outperform nonpayers.

Now, that might be the value effect, but it’s also possible that screening for dividends weeds out the most speculative fly-by-night companies. It’s also possible that committing to a dividend focuses the minds of management and forces them to steer a steady course.

Dziubinski: Right. So you mentioned in your report, and you alluded to at the beginning of our conversation, that we had some big-name tech companies declare dividends for the very first time this year. But we also did have some dividend cuts. A prime example that comes to mind for me is Walgreens cut its dividend after raising it, I think, for almost 50 years. I may be a little off, but it was a long stretch of time where Walgreens has been raising its dividend.

And a lot of people look to historical dividend growth rates and consistency of dividend growth over time as a way to find—nothing is safe—but the safer dividend-paying stocks. So that didn’t work for Walgreens, and it probably hasn’t worked for some other stocks. Is there something that investors can be looking to help figure out, “OK, how likely is this company to cut its dividends? How durable might the dividend be for this particular company?”

Lefkovitz: Yeah, it’s a great question. I think one of the key lessons is that history only gets you so far. You can have a great track record of dividend payments and dividend growth, but that doesn’t necessarily mean that the company will continue to pay in the future. The oldest cliché in investing is that the past is not necessarily predictive, and you can’t repeat it enough.

Just a couple of years ago, Shell cut its dividend. Shell had a track record of paying regular dividends going back to World War II. As you said, dividend durability, focusing on that is key. Will the company be able to sustain its payout going forward? As an equity-income investor, you don’t want to chase yield into risky sections of the market, into companies that might not be able to sustain their payout, that might be fundamentally challenged.

So in our dividend indexes, we use quality and financial health as screens. So on the quality side, we use the Morningstar Economic Moat Rating as a forward-looking gauge of, is the company well-positioned? Is it competitively advantaged? Does it have a moat around its business that will insulate the profits that fund the dividends going forward?

We also look at financial health. So does the company have the balance sheet strength, the assets, the financial wherewithal to sustain its payment going forward?

So I’d say overall interest rates are overblown as a risk factor, but yield traps are really key for equity-income investors to pay attention to. You don’t want to get lured in by a high yield that is ultimately unsustainable.

Dziubinski: So watch the balance sheet and watch the moat.

Lefkovitz: Yeah, exactly.

Dziubinski: All right, that sounds like good advice right there, Dan. So now in another portion of your report, you talk about a new book that really made an impression on you about dividend stocks, and it’s written by a guest that you actually talked to I think the other day on The Long View podcast, and that’ll be airing soon. Tell us about who wrote the book, what the book is, and what the book said that made such an impact on you.

Lefkovitz: Yeah, the book is called The Ownership Dividend. It’s written by Daniel Peris, who is a portfolio manager who runs dividend portfolios, and he’s also a historian, and he talks about the centuries-long history of dividends and how central they’ve been, that tangible cash relationship that companies have had with their minority shareholders that has weakened really in recent decades.

But he envisions a paradigm shift where dividends become more important in that cash relationship as opposed to just a price capital appreciation relationship becomes more important in the decades to come. And I encourage people to listen to the episode to hear his arguments.

Dziubinski: All right. Now, given all of this, given your research, given what you write in the book, given all of this, what do you think? Gaze into the crystal ball, are we due for a dividend stock revival?

Lefkovitz: Yeah. I mean, obviously no one knows what’s going to happen, but when I read Morningstar Equity Research, there’s lots of good things happening in sectors of the equity market that are rich in dividends. If you think about utilities, where there’s companies that are benefiting from increased demand for power coming from AI or the clean energy transition. If you think about consumer staples companies that are benefiting from a decline in inflation. If you think about healthcare, where our analysts are really excited about pipelines and innovation and biopharma and medical devices they feel like the market is underappreciating. If you think about industrials, companies that are benefiting from automation and energy efficiency.

There’s lots of interesting things happening in dividend-rich sections of the market. So that gives me some hope. If you look at history, dividend-payers go through cycles. If you look at the early 2000s before the financial crisis, the dividend section of the market was outperforming in the US. So things are always changing, and market leadership is very dynamic.

Dziubinski: Well, thanks for your time. Always good to talk to you.

Lefkovitz: You, too, Susan. Thank you.

Dziubinski: Thanks.

Well, as careful viewers might’ve noticed, I misspoke. I actually talked with David first and then Dan second in that segment. So clearly I should have had more coffee this morning. Apologies for that.

All right, it’s time to move on to the picks portion of the program. This week we’re sharing three undervalued stocks that appear in the Morningstar Dividend Yield Focus Index.

Now, as Dan alluded to during our conversation, this index uses the Morningstar Economic Moat Rating and a distance to default measure to find companies with durable dividends.

So our first dividend stock pick this week is Exxon Mobil. Now, Dave recently recommended the stock on the show as an undervalued core holding, and it’s also a good choice for investors seeking stable dividends at undervalued prices.

Exxon is Morningstar’s top pick among the integrated oil producers because we think it has the best growth prospects. Now, the stock has a narrow economic moat, trades at 4-star levels today, and yields more than 3%.

Our second dividend stock pick this week offers a higher yield: It’s Dow. Dow is one of the largest chemical producers in the world. Dow was one of Dave’s stock picks back in April.

And at that time, Dave said that he thought Dow was well-positioned for an economy poised for a soft landing and then a pickup thereafter. The company has a narrow economic moat. The stock has a 4-star rating today, and its yield is attractive. It’s topping 5%.

And then there’s our last dividend stock pick this week, and that’s Verizon. Verizon offers a high yield today, well above 6%. Morningstar expects Verizon to generate solid cash flow in 2024 to support that dividend. The company earns a narrow economic moat rating, and the stock trades at 4-star levels. And Verizon was also one of Dave’s picks last month for those looking for yet another reason to consider the stock.

Viewers interested in researching any of the stocks that we discuss on The Morning Filter can visit Morningstar.com for more analysis.

I hope you’ll join me for The Morning Filter again next Monday at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this video and subscribe to Morningstar’s channel. See you next week.