🏰 Should You Buy Morningstar's Top 10 Dividend Stocks?

Are These The Best Dividend Stocks? ⚓

One of the top investment research websites of all time is Morningstar.

Their research and data is used by both retail and institutional investors around the world.

And every few months, they release a list of what they believe are the current top 10 dividend stocks.

Today, we will be assessing the quality of their list.

Let’s dive in.

🧭 What Type of Dividend Stock?

Did you know that there are sub-categories within dividend investing?

Some people hear the term ‘Dividend Stock’ and immediately think they are referring to high yield stocks.

Some hear that term and think they are referring to dividend growth stocks.

This is where a lot of confusion for investors comes from.

Generally speaking, there are three sub-categories of dividend investing:

1. High-Yield Dividend Investing:

   For investors seeking to maximize dividend income right now

2. Defensive Dividend Investing:

   For investors seeking capital preservation and lower risk

3. Dividend Growth Investing:

   For investors looking to maximize dividend income and returns over the long term

Naturally, we should judge Morningstar’s list based on the sub-category of dividend investing it is designed to serve.

According to Morningstar:

“At Morningstar, we think that the best dividend stocks aren’t simply the highest dividend stocks or the top-performing dividend stocks. We suggest that investors look beyond a stock’s yield and short-term performance—instead, choose stocks with durable dividends and buy those when they’re undervalued.”

Morningstar is not simply selecting the stocks with the highest yields or the fastest dividend growth rates. Instead, it prioritizes companies with durable dividends, strong financial quality and attractive valuations.

This list falls under the defensive category.

🏰 Morningstar’s Top 10

Let’s review Morningstar’s top 10 dividend stock list:

1. PEP — PepsiCo

2. BX — Blackstone

3. USB — U.S. Bancorp

4. ACN — Accenture

5. DUK — Duke Energy

6. MDT — Medtronic

7. MDLZ — Mondelez International

8. AEP — American Electric Power

9. KMB — Kimberly-Clark

10. RF — Regions Financial

Let’s take a closer look at some of the key data from this list:

• Average 5 YR EPS CAGR: 3.67%

• Average P/E Ratio: 16.48x

On average, these stocks are growing earnings at a slow rate.

In fact, if you value them on a PEG (price to earnings growth) basis, these stocks look quite expensive.

PEG ratio = P/E Ratio ÷ Annual EPS growth rate

The PEG ratio for these stocks is 4.49.

For reference, that means these stocks are more expensive than the S&P 500.

💵 Dividend Metrics

Now let’s review them from a dividend perspective.

• Average Dividend Yield: 3.77%

• Average 5 YR Dividend CAGR: 7.98%

This gives the group an average Chowder Number of almost 12, which is typically considered quite strong.

Chowder Number = Current Dividend Yield + 5-Year Dividend Growth Rate

However, this does not give the full dividend picture.

Notice how the earnings growth rate is lower than the growth rate of the dividends?

That means many of these stocks have unsustainable dividend growth.

Look at a few examples.

Mondelez:

• Mondelez FCF payout ratio in 2018: 47.63%

• Mondelez FCF payout ratio in 2025: 76.88%

Pepsi:

• Pepsi FCF payout ratio in 2015: 51.65%

• Pepsi FCF payout ratio in 2025: 99.56%

Kimberly Clark:

• Kimberly Clark FCF payout ratio in 2023: 57.20%

• Kimberly Clark FCF payout ratio in 2025: 101.28%

Again, many of the stocks on this list have grown dividends at an unsustainable level over the past decade.

Unless earnings and free cash flow growth ramps up dramatically, you should not expect the strong dividend growth to continue.

🌳 Most Interesting Stock on the List?

Accenture may be the most compelling and controversial company included in Morningstar’s selections.

Accenture helps companies improve operations and adopt new technology through consulting, cloud, cybersecurity, AI, and outsourcing services.

It earns revenue from project-based advisory work and longer-term managed-service contracts.

The stock has experienced an enormous decline, falling more than 50% over the past three years, primarily due to the fear of AI disrupting the business model.

At the same time, Accenture has:

• Generated some of the strongest earnings growth on the list

• Increased its dividend at a double-digit rate

• Developed a starting dividend yield near 5%

• Continued generating substantial free cash flow

But what is truly crazy?

The valuation.

Using a reverse DCF model, we can see the market is now pricing in -9.8% free cash flow growth annually for accenture over the next decade.

Despite this, management has guided toward positive free cash flow growth over the next year.

🛡️ Is Morningstar’s List Truly Defensive?

Morningstar’s list clearly emphasizes mature companies they believe are more defensive in nature.

It’s clear they were selecting stocks from the middle of the dividend pyramid.

However, it can be dangerous to assume that traditionally “defensive” companies automatically make defensive investments at any price or under any financial condition.

A company may sell essential products, operate in a stable industry and have decades of dividend history, yet still carry meaningful risk if:

1. Earnings are stagnating

2. Free cash flow is declining

3. The payout ratio has climbed to an unsustainable level

That is the primary concern with Morningstar’s list.

Several of these companies have continued raising their dividends faster than the underlying businesses have grown.

Morningstar’s selections look defensive from an industry perspective, but true dividend safety must be evaluated at a much deeper level.

The vast majority of investors fall under the categories of:

• Dividend Growth

• High Yield

This list certainly does not cater to either group.

This is why we are building real money model portfolios on Dividendology.com for these groups.

If you want to get access to these portfolios, as well as all the features mentioned below, you can do so here:

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