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. 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 dividend stocks to buy

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 top constituents, and they also were trading in the 4- and 5-star range as of Jan. 3, 2025.

  1. ExxonMobil XOM
  2. Johnson & Johnson JNJ
  3. Chevron CVX
  4. Merck MRK
  5. PepsiCo PEP
  6. Medtronic MDT
  7. Mondelez International MDLZ
  8. Schlumberger SLB
  9. LyondellBasell LYB
  10. General Mills GIS

Here’s a little bit about each cheap dividend stock, along with some key Morningstar metrics.

All data is through Jan. 5, 2025.

ExxonMobil

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: High
  • Trailing Dividend Yield: 3.56%
  • Industry: Oil and Gas Integrated

ExxonMobil tops our list of the best dividend stocks to buy. Unlike peers that are diverting investment to renewables to achieve long-term carbon intensity reduction targets, Exxon remains committed to oil and gas, explains Morningstar director Allen Good. “While this strategy is unlikely to win praise from environmentally oriented investors, we think it’s more likely to be more successful and probably holds less risk,” he adds. Exxon qualifies as a dividend aristocrat; dividend aristocrats are those companies that have raised their dividends for 25 consecutive years or more. We think the stock is worth $135 per share, and shares trade 20% below that.

Johnson & Johnson

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 3.41%
  • Industry: Drug Manufacturers—General

Johnson & Johnson is another dividend aristocrat on our list of cheap dividend stocks to invest in. The stock is trading about 12% below our fair value estimate of $164 per share. With a diverse revenue base, solid pipeline, and exceptional cash flow, the company earns a wide economic moat rating, says Morningstar director Karen Andersen. Andersen notes that the market is underestimating the company’s solid pipeline and argues that the company’s recently updated strategy to resolve talc litigation should resolve the risk hanging over the stock. She calls Johnson & Johnson’s dividends (and share repurchases) “about right.”

Chevron

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: High
  • Trailing Dividend Yield: 4.41%
  • Industry: Oil and Gas Integrated

The second of three energy companies on this month’s list of the best dividend stocks to invest in, Chevron is trading 16% below our fair value estimate of $176 per share. The second-largest oil company in the United States, Chevron plans to acquire Hess, but arbitration around the acquisition has been pushed to 2025, adding some uncertainty to the stock. We think the stock looks attractive nonetheless, says Morningstar’s Good. “We think Chevron has a compelling investment case without Hess, but with it, Chevron has another long-term growth leg it’s currently lacking,” he says. The company also qualifies as a dividend aristocrat.

Merck

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 3.15%
  • Industry: Drug Manufacturers—General

Merck is the second healthcare stock on our list of the best dividend stocks to invest in, with its stock trading 17% below our fair value estimate of $120 per share. “Patents, economies of scale, and a powerful intellectual base buoy Merck’s business and keep it well shielded from the competition,” says Morningstar’s Andersen. The company’s balance sheet is sound and carries low risk. We expect steady future dividends, supported by a payout ratio of close to 50% relative to adjusted earnings per share, she adds.

PepsiCo

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 3.56%
  • Industry: Beverages—Nonalcoholic

Pepsi is the fourth dividend aristocrat on this month’s list of the best dividend stocks to buy. We think Pepsi stock is worth $174, and shares trade 14% below that. Despite near-term headwinds from consumer belt-tightening in the US, we think PepsiCo remains poised to bolster its competitive standing in beverages and snacks by leveraging marketing and product initiatives, reports Morningstar equity analyst Dan Su. We expect Pepsi’s payout ratio to rise to 72% and dividend payments to increase 7% annually over the next decade, says Su.

Medtronic

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 3.45%
  • Industry: Medical Devices

Medtronic stock trades 28% below our $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 equity analyst Debbie Wang explains. The company aims to return a minimum of 50% of its annual free cash flow to shareholders but has been in the 60% to 70% range in recent years, says Wang. Medtronic has raised its dividend for 46 consecutive years, earning it dividend aristocrat status.

Mondelez International

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 2.99%
  • Industry: Confectioners

Mondelez International makes its debut on our list of the best dividend stocks to buy. With a portfolio of brands that includes Oreo, Chips Ahoy, Halls, and Cadbury, we think the firm has carved out a wide economic moat. “Mondelez has proven unrelenting in its commitment to remove further complexity from its operations by rationalizing its supplier base, parting ways with unprofitable brands, and continuing to upgrade its manufacturing facilities,” argues Morningstar director Erin Lash. We forecast the company will increase its dividend in the high-single-digit range on average through fiscal 2033. We think this dividend stock is worth $75, and shares trade 20% below that.

Schlumberger

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 2.85%
  • Industry: Oil and Gas Equipment and Services

The third energy stock on our list of best dividend stocks to buy, Schlumberger stock trades 32% below our $57 fair value estimate. The world’s premier oilfield services company, as measured by market share, Schlumberger has carved out a narrow economic moat owing to its cost advantages and intangible assets. The firm’s near-term prospects are murky as the explanation and production capital expenditure cycle may be turning, explains Morningstar director Josh Aguilar. Yet, we like the company’s long-term prospects. Aguilar calls the company’s distributions “shareholder-friendly,” and we expect the management to return more than 70% of free cash flow to shareholders in dividends or buybacks.

LyondellBasell

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Medium
  • Trailing Dividend Yield: 7.24%
  • Industry: Specialty Chemicals

LyondellBasell is the highest-yielding stock on our list of the best dividend stocks to buy; shares trade 37% beneath our $115 fair value estimate. This petrochemical producer is the world’s largest producer of polypropylene. We think the company has carved out a narrow economic moat based on its cost advantages, explains Morningstar strategist Seth Goldstein. The company has increased its annual dividend payment for the past 12 years straight, averaging about 12.5% growth per year since 2012. “Management prioritizes dividend growth as a part of its capital allocation strategy,” adds Goldstein.

General Mills

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: Low
  • Trailing Dividend Yield: 3.73%
  • Industry: Packaged Foods

General Mills rounds out our list of the best dividend stocks to buy. With a portfolio of brands that includes Nature Value, Cheerios, Yoplait, and Pillsbury, among others, we think the firm has carved out a narrow economic moat. Slowing consumer spending has hurt recent results and will likely continue to do so into 2025, but we expect General Mills’ brands to deliver in the long run, argues Morningstar strategist Kristoffer Inton. The company has paid a consistent dividend for decades and has only paused increases when addressing postacquisition leverage, explains Inton. We think this dividend stock is worth $71, and shares trade 10% below that.

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