Despite all the volatility we've seen in the market this past year – from the drop in the markets following the Brexit vote to the post-election market rally in the United States – markets in the UK, US, emerging Europe and Asia have rallied strongly over the past 12 months.
While not all stocks have recovered, many have rallied. Searching for yield in this type of environment can be fraught with risks, including everything from price risk to the risk that a firm cannot meet its commitment to its dividend.
When we screen for top dividend-paying stocks among the holdings of our Ultimate Stock-Pickers, we try to hone in on the highest-quality names that are currently held with conviction by our top managers. We accomplish this by screening for holdings that are widely held, by five or more of our top managers, are yielding more than the S&P 500, represent firms with wide or narrow economic moats – sustainable competitive advantages – and have uncertainty ratings of either low or medium.
The vast majority of our Ultimate Stock-Pickers have never been mistaken for dividend investors. That said, a handful of them are more focused on income producing stocks in their pursuit of investment gains. Warren Buffett at Berkshire Hathaway has also spoken affirmatively of returning capital to shareholders and is not against investing in and holding higher yielding names. We reveal their selection below.
Ultimate Stock-Pickers is a concept we've developed at Morningstar with one simple goal: to cross-check our stock research against the opinions of professional money managers. We're not as interested in what all investment managers think, just those we consider the best in the business. As such, we maintain a list of 26 managers that we believe are worth monitoring on a regular basis.
Verizon (VZ)
Verizon is the incumbent local phone company across about 20% of the U.S. population, and it owns a long-haul network that reaches cities around the world. Verizon Wireless serves about 113 million retail wireless connections, including smartphones and tablets, making it the largest carrier in the US.
Sanofi (SNY)
Healthcare stock Sanofi is the cheapest name on a price to fair value basis on the list as well as the second highest yielding stock. Morningstar Sector Director of Healthcare Damien Conover believes that Sanofi benefits from a wide and robust line-up of branded drugs and vaccines that create strong cash flows.
Exxon Mobil (XOM)
ExxonMobil is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2016, it produced 2.1 million barrels of liquids and 10.1 billion cubic feet of natural gas per day.
Novartis (NVS)
Novartis develops and manufactures health-care products in four main operating segments: branded drugs, generic pharmaceuticals, eye care products, and consumer products. The company sells its products globally with the U.S. representing close to a third of total sales.
AbbVie (ABBV)
AbbVie is a pharmaceutical company with a strong exposure to immunology and oncology. The company's top drug, Humira, represents over half of the firm's current profits. The company was spun off from Abbott in early 2013.
Pfizer (PFE)
Pfizer is one of the world's largest pharmaceutical firms, with annual sales over $50 billion. Prescription drugs and vaccines account for the majority of sales. Top sellers include vaccine Prevnar 13 against meningitis and Lyrica for epilepsy and some types of neuropathic pain. Pfizer sells these products globally with international sales representing over 50% of its total sales.
Emerson Electric (EMR)
Emerson Electric recently divided its business operations into two segments: Automation Solutions and Commercial & Residential Solutions. The company specialises in large scale automation systems for process-oriented heavy industries, including oil and gas, refining, chemicals, and power.
General Electric (GE)
General Electric is a diversified manufacturer that operates seven separate businesses in its industrial segment: power, oil and gas, renewable energy, lighting, aviation, healthcare, and transportation. The company also provides specialty industrial financing through its GE Capital division.
Cisco Systems (CSCO)
Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and security and network management software that allow data communication among dispersed computer networks.
Nestle (NSRGY)
Founded in 1866, Nestle celebrates its 150th operating year in 2016. Today, the company is the largest food and beverage manufacturer in the world by sales, generating more than CHF 90 billion in annual revenue. Its diverse product portfolio includes brands such as Nestle, Nescafe, Perrier, Pure Life, and Purina. Nestle also owns just over 23% of French cosmetics firm L'Oreal.
