Dollar General Tops Morningstar List of Dividend Stocks

Morningstar has put together a list of the Top 10 dividend stocks that are widely held by its ‘ultimate stock-pickers.’

Given all the turmoil in financial markets recently, you may be interested in the regular income stream and possible capital gains of dividend stocks.

The Vanguard High Dividend Yield Index ETF (VYM) – Get Vanguard High Dividend Yield Indx ETF Report, has slid 7% year to date, vastly outperforming the S&P 500, which has dropped 20%.

Morningstar has put together a list of the Top 10 dividend stocks that are widely held by its “ultimate stock-pickers” — 26 top money managers.

The research firm screens for companies it believes have sustainable competitive advantages. Those are advantages that “should allow them to generate the excess returns necessary to maintain their dividends over the longer term,” according to a commentary by Morningstar analysts Verushka Shetty and Eric Compton.

“We also look for firms, where there is lower uncertainty on our analysts’ part regarding their future cash flows,” the analysts said.

“We accomplish this by screening for holdings that are widely held by … our 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.”

The Top 10 Roster

Morningstar’s list includes:

1. Dollar General (DG) – Get Dollar General Corporation Report, held by seven funds. Dividend yield: 0.9%.

2. Verizon (VZ) – Get Verizon Communications Inc. Report, held by seven funds. Dividend yield: 6.4%.

3. Automatic Data Processing (ADP) – Get Automatic Data Processing Inc. Report, held by four funds. Dividend yield: 1.8%.

4. Gilead Sciences (GILD) – Get Gilead Sciences Inc. Report, held by four funds. Dividend yield: 4.5%.

5. Colgate-Palmolive (CL) – Get Colgate-Palmolive Company Report, held by four funds. Dividend yield: 2.5%.

6. AstraZeneca (AZN) – Get AstraZeneca PLC Report, held by four funds. Dividend yield: 2.5%.

7. Sysco (SYY) – Get Sysco Corporation Report, held by four funds. Dividend yield: 2.5%.

8. GSK (GSK) – Get GSK plc American Depositary Shares (Each representing two) Report, held by four funds. Dividend yield: 8.2%.

9. Altria (MO) – Get Altria Group Inc. Report, held by four funds. Dividend yield: 8.8%.

10. Archer-Daniels Midland (ADM) – Get Archer-Daniels-Midland Company Report, held by three funds. Dividend yield: 1.8%.

Morningstar’s take on Dollar General

Morningstar analyst Zain Akbari assigns the company a narrow moat and puts fair value for the stock at $227. It recently traded at $241.

“Despite intensifying competition that we believe is diminishing its competitive edge, Dollar General’s advantageously located store network, low-priced items, and leverageable supply and distribution capabilities should allow it to deliver economic returns,” he wrote in a commentary.

The company benefits from a footprint focused on thinly populated areas that can’t support numerous retailers, Akbari said.

Morningstar’s take on Verizon

Morningstar analyst Michael Hodel gives Verizon a narrow moat and puts fair value for the stock at $59. It recently traded at $39.48.

“Verizon has taken steps to ensure it remains well positioned in the traditional wireless business,” he wrote in a commentary.

“We believe Verizon will deliver consistent results over the long term, but growth will likely be modest. Rivals AT&T (T) – Get AT&T Inc. Report and T-Mobile (TMUS) – Get T-Mobile US Inc. Report offer comparable services and sell at similar prices, which we expect will diminish Verizon’s market share lead over time.”

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This story was originally published September 21, 2022 5:35 PM.