Plus, how dividend stocks have performed so far this year.
In this bonus episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski talk dividend stock investing. They unpack the performance of dividend stocks during the first half of 2026, including how the performance of dividend stocks stacked up against that of the broad market and which sectors drove the performance.
They also suggest how income investors can screen for dividend stocks, focusing on key metrics like valuation and competitive advantages, not just high yield. They close with 10 dividend stock picks to invest in today.
Episode Highlights
00:00:00 Welcome
00:01:48 Dividend Stock Performance in 2026
00:05:30 Screening for Dividend Stocks
00:07:07 10 Undervalued Dividend Stocks
Read about topics from this episode.
How to Strengthen Your Income Portfolio
Should You Reinvest Dividends? Not Always
10 Top-Performing Dividend Stocks
Got a question for Dave? Send it to themorningfilter@morningstar.com.
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If you would like more information about any of the stocks Dave talked about today, you can visit Morningstar.com for more details. Subscribe to The Morning Filter to get notified when we post next.
Susan Dziubinski: Thank you. Hello, and welcome to a bonus episode of The Morning Filter podcast. I’m Susan Dziubinski with Morningstar. Now, as our regular viewers and listeners know, we’re doing some bonus episodes of the podcast. If you have an idea for a bonus episode, send it to us via our email address, which is themorningfilter@morningstar.com. 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. Dave will then share his top dividend stock picks for the remainder of 2026. Dave and I are taping this on July 9, 2026. Hey Dave, nice to see you in the studio.
David Sekera: It’s great. That’s why we need more of these bonus ideas coming in so we can do this in person.
Dziubinski: We do. 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. The second quarter seems like the story changed a little bit. So, where did they end the first half from a performance standpoint relative to the market?
Sekera: Well, I think first of all, you just have to look at the broad market performance overall. It’s 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 the Morningstar US Market Index, which is our broadest measure of the US stock market, was up 10.7% for the first half of the year. When you look at the Morningstar Dividend Composite Index, that was up 10.5%. 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. I think that also shows why a lot of these dividend stocks have been lagging for several years. When you think about dividend-paying stocks, typically they’re more mature companies, they’re slower growers, they’re lower duration, so you shouldn’t really have the same return profile.
When I think about dividend stocks, usually I think that over the longer term, a lot of these companies, because the cost of equity in our model will be lower on these companies, you get lower total returns. I think it just shows that over the past couple of years, a lot of these stocks have probably gotten left behind because everyone was so focused on the AI trade.
Dziubinski: Yeah. Talk a little bit about, were there any particular sectors that drove the performance specifically with dividend stocks?
Sekera: It’s interesting. We did a quick attribution analysis using Morningstar Direct. When you take a look at that on a sector basis, energy was the number one attribution as far as the greatest returns to the index, and that’s really twofold. 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 sectors 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 is still one of the top performers.
Now, when I look through the rest of the attribution analysis, what it really showed me is that it wasn’t so much about the individual sectors and the weightings of the sectors as much as I think it was really about the individual stocks and how they performed within those sectors. For example, looking at our report here, the dividend indexes overweight consumer defensive, healthcare, and utility industries. In the first half of the year, when I look at those three sectors as compared with the broad market, they all underperformed. Yet two of those three were actually some of the greatest attribution to the dividend index over the course of the year. It shows you that the stocks that were in those sectors outperformed the sector returns 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. Of course, as you would expect in the dividend index, it’s less than half of that. I think it’s only about 17% technology, yet technology is still one of the greater attributers to the index for the dividend index in the first half of the year. Again, even like Microsoft MSFT, which is down 20%, was the number one or the highest percent stock in the index; you would think it really should have pulled that back, but yet some of those other high dividend-paying technology stocks in the index moved up more than enough to be able to make it one of the top performing sectors. Again, it was really much more this past half of the year about those individual stocks than really that sector attribution.
Dziubinski: OK. 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. We’re now doing this instead of as a stand-alone project, which is how this used to be done; we’re now incorporating it into The Morning Filter as a bonus episode. 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.
Sekera: It just depends on what platform you use in order to get the Morningstar research. But as you mentioned, I do start off with a pretty general screen. Again, I’m just going to look through those stocks that we cover that trade on US exchanges. I’m going to first do a screen for only pulling up 4- and 5-star-rated stocks, looking for those that we think are undervalued, trading at a good risk-adjusted 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. I’m also going to look for companies that have a low or a medium uncertainty. Now, depending on the sector, some of the sectors lend themselves more to the high uncertainty ratings. For those sectors, I’ll pull in the high uncertainty ratings as well, and that gives me that first broad screen.
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. I’ll pull out any of those companies that our analysts think might be at risk of having to cut the dividend. Some of the ones I’ll talk to the analyst and get an update on our valuation, why we think our valuation is different from the marketplace. Really understand the story of what’s going on there. 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. I’ll try and pull some of those out as well. 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 their own portfolio. I try not to overweight too much in any one individual. I come up with a pool, and from there, I’m really looking for the ones that we think have that best risk/reward balance between low valuation and high dividend yield, but then also what the risk characteristics are for that company.
Dziubinski: 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. Your first pick at the start of the year was Verizon VZ. Talk a little bit about how it’s done this year and whether it’s still a pick.
Sekera: 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. Then, the S-1 came out for SpaceX, and the stock really ended up trading down thereafter. At this point, it’s a 4-star-rated stock, trades at a 20% discount to fair value, 6.6% dividend yield, one of the higher dividend yields that we have out there today, medium uncertainty rating, narrow economic moat. I think when I think about this stock overall and talking to Mike Hodel, who’s the analyst, really there’s nothing any different from our long-term investment thesis today. That long-term investment thesis with Verizon and the other wireless providers is that there are really only three left at this point. You’ve got Verizon, AT&T T, and T-Mobile TMUS. Over time, we’re looking for them to act more like an oligopoly, compete less on price, look to compete on brand, and some of those other items.
As they compete less on price over time, that will allow their margins to expand. 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 that high valuation that they have on it. I think a lot of people are concerned that, over time, SpaceX may try to move more into that traditional wireless communication sector and be a competitor there. I talked to Mike; he’s got a whole host of reasons why he doesn’t think that that’s going to happen. In our mind, that’s not necessarily a concern. 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.
Dziubinski: Your second stock pick is a stock we’ve talked about quite a bit on The Morning Filter, actually. It’s Kraft Heinz KHC. It’s having a just OK year; dividend yield looks like it’s still above 6%. Buy, sell, or hold on this one?
Sekera: Well, first of all, I hate the word hold. I know we’ve talked about this before. When you think about your portfolio and you look at your portfolio, you should be looking at it with the 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 selling out of. 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.
Dziubinski: All right, Dave, so what should we be doing with Kraft Heinz?
Sekera: I think it’s a buy. We actually just put it back on the top picks list for our most recent quarterly outlook. I know this is one that Erin Lash has been very constructive on this story for quite a while at this point in time. Taking a look at it, 5-star-rated stock, almost a 40% discount. As you mentioned, over 6% yield, right now it’s 6.3%, so very high yield on this stock. We’re very confident that we don’t think that this company’s going to cut that dividend anytime soon. Medium uncertainty, narrow economic moat. Let’s talk about this in two terms. In the longer term, what’s been happening in the food sector overall, and then how it’s been negatively impacted most recently. You have to remember that 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.
If you think back to 2021 and 2022, we had high inflation in the upper single digits. A lot of people would argue that we probably got into double-digit inflation. 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 their margins were getting squeezed. The original investment thesis was that 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. Of course, as more people were taking that, you did have some reduction in just the amount of caloric intake overall. That was pressuring volumes to some degree. Now we’re three years later, and you think about how you look at things on that year over year, and in this case, 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 of both of those should be lessening over time. There are more prescriptions still being written for the GLP-1 drugs, but, just by the law of large numbers, as a percentage increase, it becomes less and less compared with the prior year. While inflation is probably still hotter right now than the Federal Reserve would prefer, we are still seeing those price increases coming through. Thinking forward over time, we do expect that, as those price increases come through, they will help margins over time. Secondly, the impact of the GLP-1 drugs should become less and less over time as well.
Dziubinski: All right. Your third dividend stock pick at the start of the year was Energy Transfer ET. This one’s a limited partnership. Pretty strong performance this year, still yielding over 6%. You still like this one today?
Sekera: Still like this one today. 4-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 the moat based on one of those five moat sources. Again, I like this one just from the strategics profile of the company. You have to remember with Energy Transfer and dissociate it from what you see going on in the oil market. A lot of people will try to conflate the two, but you really shouldn’t. They make the money really on the tolling charges. They make money on oil and natural gas 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.
At this point, while we’re not expecting the economy to go gangbusters anytime soon, talking to Preston, our chief economist, he still thinks that the US economy’s running below what he thinks its long-term potential is, but we’re still in that 2%, plus or minus a half percent, type of range. I still think the volumes should just be chugging along here for the most part. Again, stock is up 20% year to date. We’ve also increased our fair value by 10%. It’s not as undervalued as it was before, but it still looks pretty good to us on that risk/reward trade-off between the amount of dividend, the margin of safety, and the long-term risks.
Dziubinski: All right. Next up, we have a couple of REITs. The first one is Healthpeak Properties DOC. 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. After that runup, you still like it as a buy?
Sekera: Really nice to see this one finally start to perform. This has been a pick on The Morning Filter whenever we talk about REITs for quite a while, and really had done nothing for a while. Of course you get 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 something that we’ve had as a pick for so long really finally starting to work. At this point, it’s only a 16% discount to fair value, but that’s still enough to keep it in 4-star territory, medium uncertainty. Again, no economic moat. But when I think about the real estate sector, there are only a handful of companies that we award with a narrow or wide economic moat, 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.
Dziubinski: All right. Another REIT is another pick. Realty Income O made your list at the start of the year. This one’s unique in that it pays a monthly dividend. It’s not up nearly as much. It’s doing pretty well this year, but not nearly as much as Healthpeak. What’s your take on this one?
Sekera: Up 12%, beating the broad market. I’m not going to complain. Over 5% dividend yield. Another one where you got some good capital appreciation, but you’ve also gotten a good income coming in at the same point in time. Also at a 16% discount, enough to keep as a 4-star-rated stock. This is one of the few companies that we do rate with a low uncertainty based on the profile of their tenants and the portfolio of real estate that they own. No economic moat. Again, I’m not concerned about it in this case. The company has 10,00 to 15,000 individual properties, triple-net lease providers, so any inflation risk really just gets passed right onto the tenant here. Again, when we look at the type of properties, the freestanding properties that are for 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.
Dziubinski: OK. Let’s move over to a couple picks from the utility sector, often thought of as being dividend-rich. Duke Energy DUK was a dividend pick in January. Looking about fairly valued today, Dave. Would you say this is still one to add money to?
Sekera: It is, but it’s also one I’m going to caution that it’s not trading at a margin of safety today. 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. 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-Eddie stable dividend coming in. 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 are one or two that are maybe a percent or two more, but again, in the grand scheme of things, a 1% or 2% differential is not enough to make me change my mind. This is one with a low uncertainty, a narrow moat, 3.3% dividend yield. One of the things I think we like about Duke Energy is that the regulatory environments in which they operate in, we think they’re very constructive as far as how they regulate energy prices from a shareholder point of view.
Dziubinski: Another utility pick, made your list in January, that’s Alliant Energy LNT. Here too, we’re looking at another utility that’s about fairly valued, assuming this is one to hold on to and add to.
Sekera: Yeah. It’s another one that I still think is a good utility today. It’s up 17.5% year to date. Again, we don’t have that margin of safety that we saw in it earlier this year. 3-star-rated stock, a little bit under 3% dividend yield. I’d love to have a higher dividend yield, but again, you’d 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.
Dziubinski: All right, let’s pivot over to consumer stocks. You have a couple more consumer names on your dividend list, including Mondelez International MDLZ. Stock’s having a decent year, still looks pretty undervalued, so assuming this is one to add to.
Sekera: Yeah, up 10.5%. So I’d say in line with the broader market portfolio returns overall, but it’s actually a pretty good return compared with a lot of the other food stocks that we’ve seen. Still 21% discount, 3.3% dividend yield, 4-star-rated stock, low uncertainty, wide economic moat. As we’ve talked about, and I’ve recommended this one on The Morning Filter, 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 here in the US. I think that does a couple of things. One, you get the higher demographic growth that you have in the emerging markets. Then, as the emerging markets have the wealth effect there, the people there are really much more willing to pay up for branded items. They’re winning on two fronts there by having that emerging-market exposure. I’d say the other good part about having that emerging-market exposure is that you don’t see the entrance of the GLP-1 drugs there. They don’t have that headwind coming from the GLP-1. I think it’s a very good setup in this company for what we’re looking for going forward.
Dziubinski: Your next consumer pick that’s also a dividend stock pick is Clorox CLX, which is another name we’ve talked about a few times on The Morning Filter. Dave, it’s not doing too well this year. Not going to lie. Of course, it’s still undervalued, so there’s the bright side of it. It’s still a stock to buy then. Talk a little bit about what’s been going on with it, and I’m assuming it’s still a dividend stock pick.
Sekera: Yeah, the performance has been disappointing this year. I think it’s down about 6.5%, last time I checked. Like I said, the bad news is down. Good news is: This is one that we are still very confident in our long-term thesis. This is just one of those examples of why, when I talk about when you start buying individual stocks, not to buy everything you can all at once, start with a partial position, half size position, whatever, leave that dry powder so if a stock does sell off, you have the ability to set a price target to the downside, do the research. If nothing has really changed, the market’s giving you an opportunity to buy some more cheaply; you can dollar-cost average down, set that next price target, so that way, if the stock continues to come down, it gives you that forewarning, that red alarm, hey, you need to check what’s going on here. Is there something different with the company that 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 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. When you think about Clorox, you think about the pandemic. Clorox wipes were like gold; everyone was out trying to buy them, companies’ volumes were skyrocketing, and they were able to charge whatever prices they wanted. Once the pandemic subsided, it came all right back down. In fact, at that point, it probably came down even more because everyone had built up their pantries, and they had all that inventory. That was really the first thing that started affecting that company, call it 2022 or 2023. Of course, they were impacted by inflation as well. They couldn’t raise their prices as fast as their own cost inputs were going up.
Unfortunately, they have also suffered from a cybersecurity breach, which is also why we like cybersecurity stocks, but that’s a different discussion. Most recently, we had the CEO resigning for health issues. Now, the company needs to really figure out new management going forward. A lot of noise surrounding the stock, but let me dig into the financial model here. First of all, the company’s fiscal year end is June 30. Actually, right now, we’re just starting fiscal year 2027. In fiscal year 2026, the year that just ended, we expect revenue to be now down 9%. The reason is that they’ve been transitioning over to an enterprise resource planning program. A lot of their customers were prebuying inventory ahead of that because sometimes when you move to these ERPs, there are sometimes some issues within a company that need to get worked through, and the retailers didn’t want to have any out-of-stocks and not be able to get the inventory. We expect that all that prebuying is what really impacted the 2026 revenue number. So, now that we’re past that stage, we expect that kind of inventory to flow through again here in 2027.
Looking at our forecast, I don’t think we’re really modeling anything all that heroic. We’re really looking for 4% long-term growth; essentially just inflation plus a little bit of volume. From there, we’re looking for operating margins to come back this year. Of course, you had the deleveraging impact last year. The fixed costs were higher as a percentage of sales. Those margins should be coming back this year, and then we’re looking for a gradual normalization and improvement there into the future. When I look at our earnings estimates for this year, I mean the company’s only trading at 13 times our 2027 earnings estimate. That tells me that I think the market is either one, pricing in that the long-term path is still negative here, which is not what we see. Or maybe the market’s just saying, at best, things are going to be stagnant here and never grow again. Again, 13 times with the kind of dividend yield, you’re looking here for a wide-moat company with as strong a brand as they have. This looks pretty attractive to me.
Dziubinski: All right. Your last dividend stock pick from the start of the year was Devon Energy DVN. It’s another stock we’ve talked about a few times on The Morning Filter. Performance-wise, still undervalued, so assuming this is one you would recommend adding to?
Sekera: Exactly. When I think about the energy sector overall, we talked about it early in the year in our 2026 outlook, why we thought energy was so undervalued as one of the more undervalued sectors coming into the year. Energy, of course, provides that natural hedge in your portfolio for inflation and geopolitical risk. Of course that all worked out in the first half of the year, which is why when energy ramped up, it was like 40% or whatever it was on March 30 is when we started making the recommendation, “Hey, time to start taking profits, go to an underweight in energy and put that into all those high-growth tech stocks, AI stocks that all just got killed in that first quarter.” Now that we’ve seen energy pull back, we’re down to a 20% discount to fair value and a 3% dividend yield. More than enough to put it in that 4-star territory.
One of the few energy names that we do rate with a narrow economic moat, with that moat source being based on the cost advantage. In this case, we do think they are a low-cost producer of oil and natural gas. When I look at the energy sector, this is really still probably the one that has the greatest margin of safety, a narrow economic moat, and that attractive dividend yield.
Dziubinski: All right. Well, thanks for your time, Dave. Good to see you in person. We’re going to hold you to this. We’re going to talk to you again in January for your picks for 2027, and we’ll review these at that time, too.
Sekera: Sounds great.
Dziubinski: 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 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.