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Morningstar Says to Look for Durable Dividends


Dividend stocks are the primary building blocks of income portfolios – that is, investment portfolios that aim to generate cash flow instead of simply growing in value. Picking which dividend stocks to buy, though, isn’t always easy. While the “instant gratification” center of your brain may tell you to simply search for the stocks paying the highest dividend, financial services firm Morningstar has a slightly more nuanced approach that you may want to consider.

A financial advisor can help you build a dividend portfolio for your investment needs and goals.

Morningstar’s Dividend Approach

The secret to building a strong dividend portfolio, according to Morningstar, is to look for dividends that are durable, not just those that are high.

“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield,” Dan Lefkovitz, a strategist for Morningstar Indexes, said in a report on the topic. “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 really screen for dividend durability, reliability going forward.”

Another key is to look for these stocks when they are undervalued. This not only allows for you to see value growth, but potentially to see dividends that will go up, as well. If you simply seek the highest dividends at the time of purchase, you may be buying these stocks near their height, and the dividends you actually end up getting could be much lower.

Morningstar’s Dividend Picks

SmartAsset: Morningstar Says to Look for Durable Dividends

Morningstar put together a list of the 10 dividend stocks they are recommending in April 2023. All of them are listed in the Morningstar Dividend Yield Focus Index, and all are trading below the firm’s fair value estimates:

  • Verizon Communications
  • Pfizer
  • Comcast
  • Gilead Sciences
  • Medtronic
  • Duke Energy
  • Blackstone
  • Truist Financial
  • Dow
  • American Electric Power

Bottom Line

SmartAsset: Morningstar Says to Look for Durable Dividends

Investing in dividend stocks is a strategy that can generate investment income – extra cash – that can either be reinvested or used for another purpose. Building a dividend portfolio, though, is more than simply picking the companies that are currently paying the highest dividends, according to Morningstar. Instead, it’s important to look for durable, consistent dividends and try to buy undervalued companies.

Investing Tips

  • For help building a durable dividend portfolio, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • To see how your investments could grow over time, use SmartAsset’s free investment calculator.

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