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 dividend stocks. Instead, we suggest 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 today 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 dividend shares today

To find the best dividend stocks, we turn to the Morningstar Dividend Yield Focus Index. The dividend stocks on this list are among the index’s constituents, and they were also undervalued, trading in 4- and 5-star range as of July 14, 2023.

  1. Verizon Communications VZ
  2. Pfizer PFE
  3. Comcast CMCSA
  4. Wells Fargo WFC
  5. Medtronic MDT
  6. Gilead Sciences GILD
  7. Dow DOW
  8. WEC Energy WEC
  9. PPL Corp PPL
  10. Kellogg K

Here’s a little bit about each cheap dividend stock, along with some key Morningstar metrics. All data is through July 14.

Verizon Communications

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Low
  • Forward Dividend Yield: 7.09%
  • Industry: Telecom Services

Verizon tops our list of the best dividend stocks. This cheap dividend stock (which is also the third-largest holding in the index) is trading a whopping 40% below our fair value estimate of $57 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 expects margins and cash flow to move higher as network projects are completed and the promotional environment eases. Hodel observes that 50% to 60% of Verizon’s free cash flow is committed to the dividend.

Pfizer

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Forward Dividend Yield: 4.52%
  • Industry: Drug Manufacturers—General

We think Pfizer stock is worth $48 per share, and it currently trades about 24% below that. Pfizer is one of the more widely held dividend stocks among Morningstar’s Ultimate Stock-Pickers—top fund and asset managers who we respect. We don’t think the market fully appreciates the pharmaceutical giant’s ability to offset major patent losses over the next five years, argues Morningstar director Damien Conover. He believes that Pfizer’s dividend is where it should be, as the company targets close to a 50% payout in dividends as a percentage of normalized earnings—on track for a mature industry.

Comcast

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Forward Dividend Yield: 2.78%
  • Industry: Telecom Services

We think Comcast stock is a buy, as shares trade 30% below our $60 fair value estimate. While broadband customer growth is anemic and NBCUniversal is challenged, we think Comcast is well positioned to limit broadband share losses and enjoy solid pricing power, says Hodel. Comcast instituted a dividend in 2008 and has increased its payout by 17% annually, on average, notes Hodel. We think the balance sheet is sound, and shareholder returns are generally appropriate.

Wells Fargo

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Forward Dividend Yield: 2.95%
  • Industry: Banks—Diversified

Wells Fargo is the only bank on our list of cheap dividend stocks, trading 29% below our $61 fair value estimate. During the second quarter, Wells Fargo’s net interest income outperformed despite rising expenses, notes Morningstar strategist Eric Compton. Compton says that Wells Fargo’s balance sheet is strong and calls the bank’s current dividend strategy “appropriate.” He adds that Wells is doing a fine job on the share-repurchase front, too, buying roughly 2.6% of its outstanding shares this past quarter.

Medtronic

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Forward Dividend Yield: 3.20%
  • Industry: Medical Devices

Medtronic is a cheap dividend stock, trading 22% below our $112 fair value. 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, explains Morningstar senior analyst Debbie Wang. 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.

Gilead Sciences

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Forward Dividend Yield: 3.94%
  • Industry: Drug Manufacturers—General

Gilead stock is another cheap dividend stock in the healthcare sector, with its shares trading about 20% below our fair value estimate of $97 per share. The company generates outstanding profit margins with its HIV and HCV portfolio, and its portfolio and pipeline support a wide Morningstar Economic Moat Rating, says Morningstar strategist Karen Andersen. The company has steadily increased its dividend over time; its payout ratio hovers around 50%, which Andersen calls “reasonable.”

Dow

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Forward Dividend Yield: 5.29%
  • Industry: Chemicals

Dow stock is trading 27% below our $72 fair value estimate. It’s also one of Morningstar’s top 33 undervalued stocks for the third quarter of 2023. One of the largest chemicals producers in the world, Dow has carved out a narrow economic moat due to the cost advantages of its ethylene and propylene manufacturing operations in North America, explains Morningstar analyst Katherine Olexa. The company has paid dividends of $2.80 per share in the last three years, which we expect to continue, says Olexa—though we think management will prioritize the dividend moving forward, she adds.

WEC Energy

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Low
  • Forward Dividend Yield: 3.57%
  • Industry: Utilities—Regulated Electric

WEC Energy stock trades 5% below our fair value estimate of $96. The largest Midwest utility, WEC has built a narrow economic moat with service territory monopolies and efficient scale advantages, says Morningstar strategist Andrew Bischof. A warmer than usual winter in 2023 will provide an earnings headwind for the rest of the year, he adds. Yet we consider the firm’s 65%-70% payout ratio to be appropriate, given the high-quality and stable nature of the company’s regulated assets. And we think the company’s management team has done an exemplary job of allocating capital.

PPL Corp

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Low
  • Forward Dividend Yield: 3.66%
  • Industry: Utilities—Regulated Electric

The second cheap dividend stock on our list from the utilities sector, PPL is trading 8% below our fair value estimate of $29 per share. A holding company of regulated utilities in Pennsylvania, Kentucky, and Rhode Island, PPL has earned a narrow economic moat rating, as its utilities are supported by constructive regulatory jurisdictions, explains Morningstar strategist Andrew Bischof. The firm plans to pay out 60%-65% of earnings, which Bischof calls “appropriate,” given the high-quality, stable nature of its regulated business. We expect the balance sheet to remain strong, too.

Kellogg

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Forward Dividend Yield: 3.60%
  • Industry: Packaged Foods

Kellogg stock completes our list of cheap dividend stocks; Morningstar market strategist David Sekera also includes Kellogg among his top dividend stocks to buy in 2023. The stock is the only consumer defensive name on our list, trading 20% below our $84 fair value estimate. Kellogg is a household name that has carved out a wide economic moat, thanks to its cost advantages as a leading packaged food manufacturer, says Morningstar director Erin Lash. We think the firm’s balance sheet is sound, and we expect Kellogg to grow its dividend at a mid-single-digit pace annually, she adds.

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 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.