Top 10 Dividend Stocks to Buy in 2026

[music] [music] >> Hello and welcome to a bonus episode of the Morningstar podcast. I'm Susan Jabinski with Morningstar. Now as our regular viewers and listeners know, we're doing some bonus episodes of the podcast. So if you have an idea for a bonus episode, send it to us via our email address, which is the morningstar@morningstar.com. So on today's bonus episode, Morningstar chief US market strategist Dave Sekera and I will be talking about dividend investing. We'll review how dividend stocks have performed this year and what's been driving the performance. And Dave will then share his top dividend stock picks for the remainder of 2026. Dave and I are taping this on July 9th, 2026. Hey Dave, nice to see you in studio. >> It's great. That's why we need more of these bonus ideas coming in so we can do this you know in person. >> And we're both in blue. I don't know what that means, but we both got the memo evidently. All right, let's talk dividend stocks. Now the first quarter of the year was a pretty strong one for dividend stocks because they were benefiting from that anti-AI halo trade in the first quarter. Uh second quarter, seems like the story changed a little bit. So where where did they end the first half from a performance standpoint relative to the market? >> Well I think first of all you just have to look at the broad market performance overall is really pretty good all things considered with all the volatility we had, all the rotation by category, rotation by sectors and everything going on. But you know, the Morningstar US Market Index, that's our broadest measure of the US stock market, was up 10.7% for the first half of the year. Now when you look at the Morningstar Dividend Composite Index, that was up 10.5% so essentially similar returns for the full half of the year. Different profiles over the course of the two quarters, but again, pretty much got you to the same place. Now, I think that also shows why a lot of these dividend stocks you have been lagging for several years. So, when you think about dividend paying stocks, typically they're more mature companies, they're slower growers, you know, they're lower duration so you shouldn't have really the same return profile. When I think about dividend stocks, usually I think that over the longer term a lot of these companies cuz like the cost of equity in our model will be lower on these companies, you get lower total return. So, I think it just shows over the past couple years, a lot of these stocks have probably gotten left behind because everyone was so focused on the AI trade. >> Yeah. Talk a little bit about, you know, were there any particular sectors that drove the performance specifically with dividend stocks? >> Well, it's interesting. So, we did a quick attribution analysis using Morningstar Direct. And when you take a look at that on a sector basis, you know, energy was, you know, the number one, you know, attribution as far as the greatest returns, you know, to the index. And that's really twofold. So, one, energy is definitely overweighted within the index when you compare the percentage of the assets there versus the broader market. But also energy was one of the top performing, you know, sectors, you know, this year. We've talked ad nauseam about it, came into the year why we thought it was an overweight and so forth. Now, there was the pullback in the second quarter, but for the first half of the year, energy still one of the top performers. Now, when I look through the rest of the attribution analysis, what it really showed me is it wasn't so much about the individual sectors and, you know, the weightings of the sectors as much as I think it was really about the individual stocks and how they performed within those sectors. So, for example, you know, looking at, you know, our report here, you know, the dividend index is overweight, you know, consumer defensive, healthcare, and utility industries. But in the first half of the year, when I look at those three sectors as compared to the broad market, they all underperformed. Yet two of those three were actually some of the, you know, greatest attribution, you know, to the dividend index over the course of the year. So it shows you the stocks that were in those sectors outperformed, you know, the sector returns, you know, overall. The other thing that I think was really interesting is that when I look at the broad market index, it's almost 40% technology today. Now, of course, as you would expect in the dividend index, it's less than half of that. I think it's only like about 17% technology. Yet technology is still one of the greater, you know, attributors, you know, to the index for the dividend index in the first half of the year. So again, even like Microsoft, which is down 20%, was like the number one, you know, or the highest, you know, percent stock, you know, in the index. You would think really should have pulled that back. But yet some of those other high dividend-paying technology stocks that are in the index moved up more than enough, you know, to be able to make it one of the top-performing sectors. So again, it was really much more of this this past, you know, half of the year about those individual stocks than really that sector attribution. >> Okay, so every January, this is going to be news to the Morning Filter's audience, but every January, you come up with a list of 10 dividend stocks that you like for the coming year. And so we're now doing this instead of as a standalone project, which is what this used to be done as. We're now incorporating into the Morning Filter as a bonus episode. So, for those who are not familiar, take a step back and walk us through your screening process for how you come up with these 10 dividend stocks. >> So it just depends on like what platform you use in order to get the Morning Star research. But as you mentioned, I do start off with a pretty general screen. So again, I'm just going to look through, you know, those stocks that we cover that trade on US exchanges. Going to first do a screen for only pulling up four and five-star rated stocks, you know, looking for those that we think are undervalued, trading at a good risk-adjusted, you know, discount or margin of safety from their long-term intrinsic valuation. Then I'm going to look for those companies that have an economic moat, whether it's a narrow moat or a wide moat. Then I'm also going to look for companies that have, you know, a low or a medium uncertainty. Now, depending on the sector, some of the sectors lend themselves more to the high uncertainty rating. So, for those sectors, you know, I'll pull in the high uncertainty ratings, as well. And that gives me kind of that first broad screen. So, then from there, I'll just do a rank order from the highest dividend yield on down. And then I'll take a look through that, you know, I'll pull out any of those companies that our analysts think, you know, might be at risk of having to cut the dividend. You know, some of the ones that I'll talk to the analysts and get like an update on our valuation, why we think our valuation is different than the marketplace. Really understand, you know, the story of what's going on there. You know, any of those where the story may be that even though the stock is undervalued, it still seems to be kind of going the wrong way in the short term. You know, I'll try and pull some of those out, as well. And of course, I do want to give people somewhat of a diversified portfolio of picks to choose from, so they can find that right sector that fits within to their own portfolio. So, I try not to overweight, you know, too much in any one individual. So, then I come up with a pool, and from there, I'm really looking for the ones that we think kind of have that best, you know, risk-reward balance between, you know, low valuation, you know, high dividend yield, but then also what the risk characteristics are, you know, for that company. >> All right, so let's get to your picks from the beginning of the year, and we're going to go through whether each of them is still a pick. So, it's something to continue buying, something to hold, or something to sell. So, your first pick at the start of the year was Verizon. So, talk a little bit about how it's done this year, and whether it's still a pick. >> So, in my mind, it's still a pick. And it's interesting, if you look at the performance this year, it actually did really well at the beginning of the year. And then the S-1 came out for SpaceX, and the stock really ended up trading down, you know, thereafter. You know, at this point, it's a four-star rated stock, trades at a 20% discount to fair value, 6.6% dividend yield, one of the higher dividend yields you know that we have out there today, medium uncertainty rating, narrow economic moat. So, I think when I think about this stock overall and talking to Mike Holdel who's the analyst, really there's nothing any different from our long-term investment thesis today. That long-term investment thesis with you know Verizon and the other wireless providers is that there's really only three left at this point. You've got Verizon, AT&T, T-Mobile. So, over time we're looking for them to act more like an oligopoly, compete less on price, look to compete on brand and you know some of those other items. And as they compete less on price over time that will allow their margins to expand. So, that's what we're looking for there. I think part of the reason that we did see that stock sell off is because SpaceX came out. Everyone's trying to figure out what SpaceX is going to do, how it's going to justify you know that high valuation that they have on it. So, I think a lot of people are concerned that over time SpaceX may try more into that traditional wireless communication sector, be a competitor there. I talked to Mike, you know he's got a whole host of reasons you know why he doesn't think that that's going to happen. So, in our mind that's not necessarily a concern and so that's one of those reasons that we think the market is giving you that opportunity today to be able to buy the stock at that large of a margin of safety. >> Okay. Uh your second stock pick is a stock we've talked about quite a bit on the Morning Filter actually. It's Kraft Heinz. Um it's having a just okay year. Dividend yield looks like it's still above 6%. Buy, sell, or hold on this one? >> Well, first of all I hate the word hold and I know we've talked about this before. [laughter] And when you think about your portfolio and you look at your portfolio, you know you should be looking at it with a thought process, this is something I would like to own more of because I think it's undervalued or this is something that's either overvalued or doesn't give me that margin of safety that I should be you know selling out of. So, yes there are holds but again I always like to think of things in terms of I should either be buying more of that or I should be selling that. >> Hi Dave, so what should we be doing with Kraft Heinz? >> I think it's a buy. And we actually just put it back on the top picks list for our most recent Yauco quarterly outlook. I know this is one that Aaron Lash has been very constructive, you know, on this story, you know, for quite a while at this point in time. So taking a look at it, five-star rated stock, almost a 40% discount, as you mentioned, over 6% yield right now at 6.3%. So very high yield on this stock. We're very confident, you know, we don't think that this company's going to be cutting that dividend, you know, anytime soon. Medium uncertainty, narrow economic moat. So let's talk about this in like two terms. So kind of the longer term, what's been happening in the food sector overall, and then kind of how it's been negatively impacted most recently. So you have to remember with the food companies, they have a lot of pricing power, but they may not necessarily be able to exercise that pricing power as quickly as you would like. So if you think back to 2021, 2022, we had the high inflation, upper single digits, a lot of people would argue we probably got into double-digit inflation. So the food companies were raising their prices, but they weren't able to push through those price increases as fast as their input costs, and so their margins were getting squeezed. So the original investment thesis was, you know, over time they will get that margin back as they catch up to inflation as inflation was coming down. Well, then 2023 is when we saw really the biggest ramp up in the rate of growth for the GLP-1 prescriptions. And of course, as more people were taking that, you did have some reduction in just the amount of caloric intake overall. So that was pressuring volumes, you know, to some degree. So now we're three years later, and you think about how you look at things on kind of that year-over-year, and in this space, you know, a stacked year-over-year comp period, I think we're now starting to get to the point where I think that the negative impacts, you know, of both of those should be lessening over time. So, there are more prescriptions still being written for the GLP-1 drugs, but you know, just law of large numbers as a percentage increase it becomes less and less compared to the prior year. And while you know, inflation is probably still hotter right now than the Fed would prefer, we are still seeing those price increases coming through. So, thinking forward over time, you know, we do expect as those price increases coming through that will help more margins over time. And then secondly, the impact of the GLP-1 drugs should become less and less over time as well. >> All right. Your third dividend stock pick at the start of the year was Energy Transfer. This one's a limited partnership. Pretty strong performance this year. Still yielding over 6%. So, you still like this one today? >> Still like this one today. Four-star rated stock, 17% discount, 6.7% dividend yield, medium uncertainty. Now, this is one with no economic moat. In the energy sector, it's very difficult to be able to really drive, you know, the moat based on one of those five moat sources. But again, I like this one just from kind of the strategic profile of the company. So, you have to remember with Energy Transfer and kind of disassociate it from what you see going on in the oil market. A lot of people will, you know, try and conflate the two, but you really shouldn't. They make the money really on the tolling charges. So, they make money on oil and natural gas, you know, going through their pipelines. And it's really not impacted all that much by the price of oil. It's really going to be more impacted by volume, which is going to be much more correlated to the economy. So, at this point, while we're not expecting the economy to go gangbusters, you know, anytime soon, talking to Preston, our chief economist, you know, he still thinks that the US economy is running kind of below what he thinks his long-term potential is, but we're still in that 2% kind of plus or minus a half percent type of range. So, I still think the volumes, you know, should just be chugging along, you know, here for the most part. So again, stock up 20% year-to-date. We've also increased our fair value by 10%. So, it's not as undervalued as it was before, but it still looks, you know, pretty good to us kind of on that risk reward trade-off between, you know, the amount of dividend, the margin of safety, and the long-term risks. >> All right. Next up, we have a couple of REITs. Uh first one is Healthpeak Properties. Um having a really good year. I mean, REITs are enjoying a little bit of a revival this year, but Healthpeak is up about 40% last time I checked. So, what about this one is after that run up, you still like it as a buy? >> Really nice to see this one finally start to perform. You know, this has been a pick on the Morningstar whenever we talk about REITs here for quite a while, and really had done nothing for a while. Now, of course, you get, you know, a 5.6% dividend yield, so it's one of these ones you've been able to get paid while you wait, but yeah, it's nice to finally see, you know, something that we've had as a pick for so long really finally starting to work. So, at this point, it's only a 16% discount to fair value, but that's still enough to keep it in four-star territory, medium uncertainty. Now again, no economic mode, but again, when I think about the real estate sector, there's only a handful of companies that we award with a narrow or wide economic mode. So, that doesn't concern me in this case. Again, no change to our longer-term investment thesis here. Personally, within the real estate sector, I still like investing in those REITs whose tenants are more defensive oriented, which is exactly what you see here. >> All right. Another REIT is another pick, Realty Income, uh major list at the start of the year. This one's unique in that it pays a monthly dividend. Uh it's not up nearly as much. It's doing pretty well this year, but not nearly as much as Healthpeak. So, what's your take on this one? >> Up 12% beating the broad market. I'm not going to complain. Five over 5% dividend yield, so again, another one where, you know, you got some good capital appreciation, but you've also gotten that good income coming in at the same point in time. Also, 16% discount, enough to keep as a four-star rated stock. This is one of the fewer companies that we do rate with a low uncertainty, you know, based on the profile of their tenants and the portfolio of um real estate that they own. No economic moat, again, I'm not concerned about it in this case. Company is, you know, it's 10,000-15,000 you know, individual properties, triple net lease provider, so, you know, any inflation risk really just gets passed right on to the tenant here. And again, when we look at the type of properties, you know, the free-standing properties that are far more defensive-oriented retailers. Again, I like this one from being in the real estate market and still steering clear of what I consider to be the risk in the urban office space. >> Okay. Let's move over to a couple picks from the utility sector, often thought of as being dividend rich. Uh Duke Energy was a dividend pick in January. Looking about fairly valued today, Dave. So, you say this is still one to add money to? >> It is, but it's also one I'm going to caution that it's not trading at a margin of safety today. But there's really nothing in the utility sector other than what I consider to be more story stocks, which are going to have specific catalysts as far as why we think they're undervalued. But again, those are going to have a lot of risks that I don't think are necessarily appropriate for someone who's looking for that kind of steady eddy, you know, stable dividend, you know, coming in. So, really when I look at the sector here, there's not a lot else that's trading at more of a margin of safety. There's one or two that's maybe a percent or two more, but again, you know, in the grand scheme of things, one or two percent differential is not enough to make me change my mind. You know, this is one with a low uncertainty, narrow moat, 3.3% dividend yield. You know, one of the things I think we like about Duke Energy is that the regulatory environments in which they operate in, you know, we think they're very constructive as far as, you know, how they regulate, you know, energy prices as far as, you know, that shareholder point of view. >> Okay. Another utility pick, major list in January, that's Alliant Energy. So, here too, we're looking at another utility that's about fairly valued. Assuming this is one to hold on to two and add to. >> Yeah, so again, it's another one that I still think is a good utility today. It's up 17 and 1/2% year-to-date. So again, we don't have that margin of safety that we saw in it, you know, earlier this year. Three-star rated stock, little bit under 3% dividend yield. I'd love to have a higher dividend yield, but again, you have to take sometimes what the market is offering. It's a regulated utility in Iowa and Wisconsin. Again, we're very comfortable with the regulatory environments there. >> All right, let's pivot over to consumer stocks. You have a couple of more consumer names on your dividend list including Mondelez International. Stock's having a decent year, still looks pretty undervalued. So assuming this is one to add to. >> Yeah, up 10 and 1/2% so I'd say in line with the Braun market portfolio, you know, returns, you know, overall. But it's actually a pretty good return compared to a lot of the other food stocks that we've seen. Still 21% discount, 3.3% dividend yield, four-star rated stock, low uncertainty, wide economic moat. And as we've talked about and I've recommended this one on the morning filter, you know, one of the aspects that I like about this company is that they have a much higher percentage of their business going into the emerging markets than what you see with a lot of the other food companies, you know, here in the US. So I think that does a couple of things. So one, you get the higher demographic growth, you know, that you have in the emerging markets. And then as the emerging markets have the wealth effect there, you know, the people there are really much more willing to, you know, pay up for branded items. So they're kind of, you know, winning not on two fronts there by having that emerging market exposure. And then I'd say the other good part about having that emerging market exposure is you don't see the entrance of the GLP-1 drugs there. So again, they don't have that headwind coming from the GLP-1. So I think it's a very good setup in this company for what we're looking for going forward. >> All right, your next consumer pick that's also dividend stock pick is Clorox, which is another name we've talked about a few times on the morning filter. Uh Dave, it's not doing too well this year. Not going to lie. So, of course it's still undervalued. So, there's the There's the bright side of it. It's still a stock to buy then. So, talk a little bit about what's been going on with it, and I'm assuming it's still a dividend stock pick. >> Yeah, their performance has been disappointing this year. I think it's down about 6.5% you know, last time I checked. So, like you said, you know, bad news is down, good news is this is one that we you know, are still very confident in our long-term thesis. So, this is just one of those examples of why when I talk about when you start buying individual stocks, not to buy you know, everything you can all at once. Start with a partial position, half-size position, you know, whatever. Leave that dry powder. So, if a stock does sell off, you have the ability to you know, set a price target to the downside, do the research if nothing is really changed, the market's giving you opportunity to buy some more cheaper, you can dollar cost average down, set that nice next price target. So, that way if the stock continues to come down, you know, gives you that forewarning, you know, that red alarm, "Hey, you need to check what's going here, and is there something different with the company that you know, maybe the market's right and you should be out, or conversely, is this one where it's really going down because there's so much noise going on out there as a as opposed to really a change in the long-term investment thesis. This is one where I still think, and it's been years now running, this company's really been affected a lot by the noise surrounding it. So, when you think about Clorox, you think about the pandemic, you know, Clorox wipes were like gold, everyone is out trying to buy them, company's volumes were skyrocketing, you know, they were able to charge whatever prices they wanted. And then of course, once the pandemic you know, subsided, you know, it came all right back down. And in fact, at that point it probably came down even more because everyone had built up you know, their pantries and they had all that inventory. So, that was really the first thing that started affecting that company, you call it 2022, you know, 2023. Then of course, they were impacted by inflation as well. They couldn't raise their prices as fast as their own, you know, cost inputs were going up. Unfortunately, they also have suffered from a cybersecurity breach, which is also why we like cybersecurity stocks, but that's a different discussion. You know, and then most recently we have the CEO resigning for, you know, health issues. So, now, you know, the company needs, you know, to really kind of figure out new management, you know, going forward. So, a lot of noise surrounding the stock, but let me kind of dig into, you know, the financial model here. So, first of all, you know, the company's fiscal year end is June 30th. So, actually right now we're just starting fiscal year 2027. Now, in fiscal year 2026, the year that just ended, we expect revenue to be now down 9%. The reason is they've been transitioning over to an enterprise resource planning program. And so, a lot of their customers were pre-buying inventory ahead of that because sometimes when you move to these ERPs, you know, there's sometimes some issues within a company that kind of need to get worked through and, you know, the retailers, you know, didn't want to have any out of stocks and not be able to get the inventory. So, we expect that all that pre-buying is what really impacted the 2026 revenue number. So, now that we're past that stage, we expect, you know, that kind of inventory to flow through again here in 2027. And then looking at our forecast, I don't think we're really modeling anything all that heroic. You know, we're really kind of looking for a 4% kind of long-term growth. So, essentially just inflation plus a little bit of volume. From there, we're looking for operating margins, you know, to come back this year. So, of course, you had the deleveraging impact last year. You know, the fixed costs were higher as a percentage of sales. So, again, those margins should be coming back this year, and then we're looking for a gradual normalization and improvement, you know, there into the future. When I look at, you know, what are earnings estimates for this year, I mean, the company's only trading at, you know, 13 times our 2027 earnings estimates. So, that tells me that I think the market is either one, you know, pricing in that, you know, the long-term path is still negative here, which is not what we see, or maybe the market's just saying at best, you know, things are going to be stagnant here and and never grow again. But again, 13 times with the kind of dividend yield, you know, you're looking here for a wide moat company with as strong of a brand as they have, you know, this looks pretty attractive to me. >> All right. And then your last dividend stock pick from the start of the year was Devon Energy. It's another stock we've talked about a few times on the Morning Filter. Uh okay performance-wise, still undervalued, assuming this is one you would recommend adding to. >> Exactly. And when I think about the energy sector overall, you know, we talked about it in early in the year in our 2026 outlook, you know, why we thought energy was so undervalued. It was one of the more undervalued sectors coming into the year. Energy, of course, provides that natural hedge in your portfolio for inflation, geopolitical risk. And of course, that all worked out in the first half of the year, which is why when energy ramped up, I don't know, it was like 40% or whatever it was, on March 30th is when we started making the recommendation, "Hey, time to start taking profits. Go to an underweight in energy." And you put that into all those, you know, high-growth tech stocks, AI stocks that all just got killed, you know, in that first quarter. So now that we've seen energy pull back, you know, we're now down to a 20%, you know, discount to fair value, 3% dividend yield. So more than enough to put it in that four-star territory. One of the few energy names that we do rate with a narrow economic moat. That moat source, you know, being based on the cost advantage. So in this case, we do think they are a low-cost, you know, producer of oil and natural gas. So when I look at the energy sector, this is really still probably the one that has the the greatest, you know, margin of safety, a narrow economic moat, and that attractive dividend yield. >> All right. Well, thanks for your time, Dave. Good to see you in person. And we're going to hold you to this. We're going to talk to you [laughter] again in January for your picks for 2027 and we'll review these at that time. >> Sounds great. >> Uh viewers and listeners who'd like more information about any of the stocks they've talked about today, can visit morningstar.com for more details. We hope you'll join us again on Monday for the Morning Filter podcast at 9:00 a.m. Eastern, 8:00 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.