Best Stocks By Dividend Yield
Screen over 46,000 companies to find the best stocks by dividend yield meeting your criteria, see Morningstar analysts' best dividend stock picks, stock research reports & 2-year dividend forecasts for ASX200 stocks, inside Morningstar Investor.
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Dividend Stocks
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Stock Name
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Market Cap (mil)
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Latest price
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Dividend Yield
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Price/Earnings
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Morningstar Rating
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| 1. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 2. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 3. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 4. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 5. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 6. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 7. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 8. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 9. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
| 10. XXXXXXXXXX | XXX.XX | XXX.XX | XX.XX | XX.XX | XXXX |
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About Morningstar’s stock research methodology
The Morningstar Rating for stocks identifies stocks trading at a discount or premium to their intrinsic worth--or fair value estimate, in Morningstar terminology. Five-star stocks sell for the biggest risk-adjusted discount to their fair values, whereas 1-star stocks trade at premiums to their intrinsic worth.
Our star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, tax situation, time horizon, income needs, and complete investment portfolio, among other factors.
5-star: We believe appreciation beyond a fair risk-adjusted return is highly likely over a multiyear time frame. Scenario analysis developed by our analysts indicates that the current market price represents an excessively pessimistic outlook, limiting downside risk and maximising upside potential. This rating encourages investors to consider an overweight position in the security relative to the appropriate benchmark.
4-star: Appreciation beyond a fair risk-adjusted return is likely, in our opinion. This rating encourages investors to own the firm’s stocks, possibly overweight relative to the appropriate benchmark after fully considering more attractively priced alternatives, such as our 5-star ratings.
3-star: Indicates that we believe investors are likely to receive a fair risk-adjusted return (approximately cost of equity). Concentrated portfolios might consider exiting these positions if more attractively priced alternatives are available.
2-star: We believe investors are likely to receive a less than fair risk-adjusted return and should consider directing their capital elsewhere. Securities with this rating should generally be underweight, assuming less expensive alternatives are available for the portfolio strategy being employed.
1-star: Indicates a high probability of undesirable risk-adjusted returns from the current market price over a multiyear time frame, based on our analysis. Scenario analysis by our analysts indicates that the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to Capital loss. This rating encourages investors to strongly consider exiting portfolio positions in the security in nearly all strategies.
What Drives The Morningstar Rating?
Four key components drive the Morningstar rating:
- Our assessment of the firm’s economic moat. The economic moat represents a sustainable competitive advantage
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- The current market price
This process ultimately culminates in our single-point star rating. Underlying this rating is a fundamentally focused methodology and a robust, standardised set of procedures and core valuation tools used by Morningstar’s equity analysts.
Our analysts keep close tabs on the companies they follow, and, based on thorough and ongoing analysis, raise or lower their fair value estimates as warranted. Furthermore, we would expect our fair value estimates to generally rise over time, due to the time value of money.
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It started with an idea—one great idea from a 27-year-old stock analyst. Joe Mansueto thought it was unfair that people didn’t have access to the same information as financial professionals. So he hired a few people and set up shop in his apartment—to deliver investment research to everyone. We didn’t know then what the company would look like today, but we knew the commitment to our mission—to empower investor success—wouldn’t change. Now, we operate through wholly- or majority-owned subsidiaries in over 30 countries. We’ve empowered investors all over the world, and we’re continuing to look for new ways to help people achieve financial security.
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Frequently Asked Questions
➣ How do Morningstar stock, ETF and fund ratings work?
Inside Morningstar Investor, two ratings systems do a lot of the heavy lifting when it comes to identifying opportunities. Here's how each one works.
About Morningstar Ratings for Shares
Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.
Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.
Moat Rating: An economic moat is a structural or competitive advantage that allows a firm to generate attractive long-term profits. Companies with no moat are considered to lack long-term competitive advantages. Companies with a narrow moat are those we believe are more likely than not to sustain attractive profits on average for at least a decade. For wide-moat companies, we have high confidence attractive profits will persist for 10 years and are likely for at least 20 years.
Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. It reflects our confidence in forecasting cash flows and the fair value estimates for companies. An investor can think of the Uncertainty Rating as reflecting the underlying business risks, influenced by factors such as debt load and cyclicality. The rating is used to assign the margin of safety required before investing, which explicitly drives our stock star ratings. For higher risk businesses with wider ranges of potential outcomes, an investor should consider a larger margin of safety between the estimate of what the shares are worth and how much an investor is prepared to pay.
About Morningstar Medalist Ratings for Funds
The Morningstar Medalist Rating for funds is a forward-looking, qualitative rating that helps investors find funds that are likely to outperform their benchmarks over a full market cycle, after considering a fund manager’s people, investment process, parent entity and fees.
Medals (Gold, Silver, and Bronze) indicate that our research methodology expects a fund to outperform its benchmark over a full market cycle. Neutral ratings mean that the methodology is not expecting a fund to outperform and Negative ratings express this with increased conviction.
➣ Why does Morningstar’s ratings on my broker platform differ from the ones in Morningstar Investor
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This is why the research and ratings may differ between your membership and your broker.
Morningstar Investor is not a broker service – it offers a different service to your broker – focusing on providing investors a holistic portfolio management tool that helps you track, monitor and maintain your investments.
➣ I receive Morningstar ratings for free from my broker. How is this product different? What is the difference if I access it directly?
The level of access to Morningstar ratings and data differs broker to broker, but in most instances, the ratings that you receive free from your broker are quantitative in nature. This means that fair value (the long-term intrinsic value of a share) that is assigned to a share is calculated based on an algorithm. As part of Morningstar Investor, you receive access to qualitative analyst research on more than 1600 stocks, forward-looking ratings on over 3,000 ETFs and managed funds.
Morningstar Investor is a holistic solution that is focused on the investor, and not the investment. It offers access to ratings, as mentioned, and data on over 46,000 securities. It also includes analyst insights and editorial thought leadership, including forecasts for ASX/200 stocks.
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How to choose dividend stocks
Dividend payers such as the big four banks, BHP Group, and tollroad operator Transurban are prized by Australian investors searching for income in retirement. The taxation system also richly rewards shareholders who can take advantage of franking credits.
Dividends are an indication that a business is established and financially healthy enough to return cash to shareholders. They also force management to focus on the long term and their capital-allocation decisions.
Sadly, however, so-called high yield stocks are not necessarily the best buys. Choosing stocks with the highest dividend yield can lure investors into risky corners of the market, exposing them to financial distress, dividend cuts, and share price declines.
We'll look at six factors that can contribute to a sustainable dividend.
1. Seek 'healthy' payout ratios
One of the most important statistics for dividends is a company's payout ratio.
As the name suggests, the payout ratio is the proportion of a company's earnings paid out as dividends. For example, if a company pays out $2 a share and has $5 of earnings, 2 divided by 5 is 0.4 – or 40 per cent. The payout ratio is 40 per cent.
A lower payout ratio can indicate that the dividend is "healthy".
There is a margin of safety that allows a company to miss its earnings target and still be able to pay out its dividend, and there may also be room for management to increase the dividend over time.
A payout ratio over 100 may indicate that the dividend is in jeopardy because no company can continue to pay out more than it earns indefinitely.
The payout ratio is a key number in evaluating dividend safety. But it's not the only statistics to consider.
For example, what's a good payout ratio for a utility – say 70 per cent – might be much too high for a steel mill or an oil refiner, which are much more volatile businesses where earnings could be wiped out at the bottom of a cycle and the dividends get cut.
Investors should think about how a payout ratio balances against the company's need to invest for internal growth, as well as providing that cyclical safety margin for future downturns.
2. Make sure your dividends grow
Ultra-high dividend yields can be particularly attractive in the current low-return environment, but it’s important to resist the temptation to load up on these shares. Investors may be better placed seeking companies who not only pay out dividends but also have a track record of continued dividend growth.
If a company just raised its dividend, it's quite unlikely – unless it has a deliberately and obviously variable policy for paying dividends on a quarterly basis –it's going to turn around and cut it immediately.
Companies that are focused on growing dividends tend to be higher-quality, cash-rich businesses that hold up well in down markets, participate in up markets, and are capable of excess returns over a full market cycle.
But like the payout ratio, growing dividends is not a perfect indicator.
Dividend cuts in the past don't mean that dividend cuts are going to be there in the future, and the absence of a cut doesn't guarantee that the dividend won't be cut in the future.
But if there is a pattern of dividend cuts, it can raise important questions about the business. It may be too volatile to sustain what you expect.
3. Does it have a moat?
Why do moats matter when it comes to dividend stocks? Companies which have a sustainable competitive advantage tend to be better able to generate free cash flow and raise their dividend payouts over time and through periods of volatility.
Coca-Cola is an example of a wide-moat company. It has good profit margins, the opportunity to expand them further and generates significant amounts of free cash flow.
4. Don't ignore the balance sheet
Investors should consider both equity metrics - such as price-to-earnings and earnings-per-share – and balance sheet metrics such as gearing (or borrowed money), interest coverage and net debt / EBITDA.
As creditors stand ahead of investors in line for company cashflows, a healthy balance sheet – or a balance sheet with more total assets than liabilities – is a positive when it comes to selecting a dividend stock.
A company with a strong balance sheet can also go to the market and borrow cheap debt to pay for acquisitions, projects that they're doing internally, instead of issuing new equity or reducing dividends.
A good rule of thumb is to be extra sceptical of companies with interest coverage ratios (EBIT/interest expense) below three times or net debt/EBITDA ratios above two times.
5. Pay attention to valuation
Buying a share for their dividends and yield alone may save you from making emotional trading decisions based on share price volatility, but constantly overpaying for shares is no formula for success. A company with a fat dividend yield is only attractive at the right price.
A good way to get a sense of a stock’s valuation and whether or not it can sustain it is to look for stocks that are trading at or below Morningstar’s fair value estimates, which considers all of our research and forecasting of a company's future financial performance.
Investors may also like to buy stocks with a "margin of safety”—that is, companies trading at a meaningful discount (at least 10-15 per cent) to their fair value estimate.
6. Look at free cash flow and beware of ‘pseudo dividends’
Excess free cash flow is a crucial sign of a company’s ability to maintain sustainable dividends. That way, if a company goes through a tough year, they may still have enough of a buffer to maintain their payout.
But don’t forget to consider how that free cash flow is generated. Is it relying on debt to pay unsustainable, ‘pseudo’ dividends?
If you look for companies with at least 1.5 times free cash flow cover, about two thirds of earnings and free cash flow will be used to pay the dividend – leaving you with a margin of safety for a potential short-term drop in cash flow.
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