Morningstar's picks for the 10 best dividend stocks. How do you avoid the "yield trap"?

Oil giant ExxonMobil, pharma company Merck and soda and chips maker PepsiCo have made Morningstar's list of the best dividend stocks to buy in 2025. As experts noted, investors need to be selective when choosing dividend stocks: a high yield doesn't always guarantee reliability, and companies with "economic moats" - solid competitive advantages that protect the business - are better.

"It's important to be selective when it comes to buying dividend stocks and chasing yield," explains Morningstar Indexes strategist Dan Lefkowitz. - The search for sectors with the highest yields often leads investors into trouble spots and so-called "dividend traps" - companies with nice yields that end up being unviable. We need to analyze the sustainability and reliability of dividends in the future.

Morningstar DividendInvestor editor David Harrell recommends selecting companies whose management consistently maintains a dividend policy, as well as favoring businesses with strong competitive advantages - the analyst agency calls them economic moats. Morningstar assigns companies a corresponding "moat rating" - an assessment of that "economic moat."

"A moat* rating alone is no guarantee of stable dividends, but we see a direct correlation between the presence of an 'economic moat' and the reliability of payouts," emphasizes Harrell.

Morningstar has highlighted the 10 best dividend stocks to buy in 2025. The list includes companies from industries ranging from energy to pharmaceuticals. To find the best picks, Morningstar used the Dividend Yield Focus index. The list includes companies from the index's key components that have "economic moats" and a 4-5 star rating as of September 5, 2025.

"Economic moat: Narrow

Level of uncertainty: High

Dividend yield (forecast): 3.63%

Industry: Oil and gas, integrated companies

ExxonMobil tops the list of best dividend stocks. Unlike competitors that are aggressively investing in renewable energy to reduce their carbon footprints, ExxonMobil remains focused on oil and gas. That strategy may be less appealing to environmentally focused investors, but it appears to be more successful and less risky, according to Allen Goode, a Morningstar director. ExxonMobil is among the "dividend aristocrats" - companies that have increased dividends for 25 consecutive years or more. Morningstar estimates the stock's fair price at $135, and the current quote is 19% lower.

"Economic Ditch: Wide

Level of uncertainty: Medium

Dividend yield (forecast): 3.82%

Industry: Drug manufacturers

Merck is the first of two health care companies on the list. The stock is trading 24% below its fair value of $111 per paper. Demand for Gardasil's HPV vaccine remains weak in China, which has hurt revenue. However, Morningstar considers the stock undervalued. The company's balance sheet is solid and risks are low. The dividend remains sustainable, with a payout ratio of about 50% of adjusted earnings per share, notes Morningstar director Karen Andersen.

"Economic Ditch: Wide

Level of uncertainty: Medium

Forecast dividend yield: 3.11%

Industry: Manufacture of beverages and foodstuffs

PepsiCo has a strong market position with a diversified portfolio of brands including Pepsi, Mountain Dew, Lay's, Doritos and Gatorade. The company has consistently raised its dividend for more than 50 consecutive years, making it a typical representative of dividend aristocrats. Morningstar estimates the stock has a fair value of $190, while the securities are trading about 15% below that mark.

"Economic Ditch: Wide

Level of uncertainty: Medium

Forecast dividend yield: 3.77%

Industry: Medical equipment

Medtronic is one of the largest medical device manufacturers in the world. The company has regularly raised its dividend for more than 45 years and is characterized by strong cash flow. Despite lower growth rates in certain segments, the stock looks undervalued: Morningstar estimates its fair value at $112, while the current price is nearly 20% lower.

"Economic moat: Narrow

Level of uncertainty: Medium

Forecast dividend yield: 4.47%

Industry: Banking services

U.S. Bancorp is one of the largest regional banks in the United States. Despite interest rate and regulatory pressures, the bank continues to show resilience and generously shares profits with shareholders. The stock is trading nearly 30% below its fair value of $55, which presents an opportunity for long-term investors.

"Economic Ditch: Wide

Level of uncertainty: Medium

Forecast dividend yield: 2.77%

Industry: Aerospace and defense industry

Lockheed Martin remains a defense sector leader with robust government contracts and a high barrier to entry for competitors. The company regularly raises dividends and conducts share buybacks. Morningstar estimates the fair value of the stock at $540, while the securities are currently trading nearly 18% cheaper.

"Economic Ditch: Wide

Level of uncertainty: Medium

Forecast dividend yield: 2.62%

Industry: Food products and sweets

Mondelez owns iconic brands such as Oreo, Milka, Toblerone and Cadbury. The company generates stable cash flows and continues to grow its dividend thanks to its wide geographic reach and strong position in emerging markets. Morningstar estimates the stock is trading 17% below fair value at $87 per share.

"Economic moat: Narrow

Level of uncertainty: High

Forecast dividend yield: 2.16%

Industry: Oilfield service companies

SLB is the world's largest provider of technologies and services for the oil and gas industry. The company has already experienced cyclical crises and managed to strengthen its position amid the energy transition. Despite the sector's volatility, Morningstar considers the stock undervalued by about 22% relative to its fair value of $70.

"Economic moat: Narrow

Level of uncertainty: Medium

Forecast dividend yield: 4.19%

Industry: Consumer health products

Kenvue is a spin-off of Johnson & Johnson, which owns brands such as Tylenol, Band-Aid and Listerine. Unlike many new companies, Kenvue announced a dividend policy immediately after going public and began sharing profits with shareholders. Morningstar estimates the securities are trading nearly 25% below fair value at $26.

"Economic moat: Narrow

Level of uncertainty: Medium

Forecast dividend yield: 4.87%

Industry: Packaging materials

Amcor is a global leader in food and beverage packaging. Despite its moderate growth rate, the company is highly resilient to economic cycles and has stable margins. Morningstar considers a fair price target of $12 for the stock, which is 20% above the current stock price.

This article was AI-translated and verified by a human editor