Morningstar: Buy these 10 cheap, high-quality stocks that pay a healthy dividend to help offset stock market losses and slowing economic growth

  • Dividend stocks may take center stage during rough economic conditions in 2023.
  • But with defensive sectors rising in value, good investment opportunities can be hard to find.
  • Morningstar’s Dave Sekera recently listed 10 cheap, high-quality dividend-paying stocks to buy now.

Investing in the face of slowing economic growth isn’t an easy task. But traditionally there’s one tool investors can add to their arsenals for a steady and resilient cash flow even in the middle of a recession: dividend-paying stocks.

As equity valuations slumped into an official bear market last year, high-quality dividend-paying stocks took center stage to rise above their more speculative peers. According to Morningstar chief US market strategist Dave Sekera, it’s no coincidence that dividend stocks stole the show in 2022.

“Most of those dividend-paying stocks, of course, are more established companies and typically are more in those value categories, and even more specifically, within defensive sectors. And again, those are the ones that held up last year,” he explained in a recent video, adding that the majority of stocks that sold off the most belonged to growth sectors.

Despite cooling inflation, there’s no guarantee that macroeconomic conditions will fare any better this year, at least for the first six months of 2023. “We do think that there’s a good chance the economy is going to be pretty stagnant to potentially recessionary in the first half of this year before we can see it reaccelerate in the second half of the year,” Sekera said. He added that increased pressure on earnings could cause companies to try and build up their cash reserves by slowing their dividend growth rates for some time.

With profits slowing and liquidity tightening, investors like Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, believe that high-quality dividend stocks will still outperform in the short term. But since last year, some defensive sectors are now trading either fully valued or slightly overvalued, making it even harder for investors to find good opportunities amongst dividend payers, Sekera explained.

10 high-quality dividend payers

In the video, Sekera identified 10 high-quality stocks that are currently trading below their fair values, have high upside potential, and have a “relatively decent or healthy” dividend yield payout.

Some, like Verizon (VZ), for instance, are in a sector that was hit hard last year, while others like Kellogg (K) stand out due to the company’s competitive advantage over its peers. “When we look at the brands in their portfolio, we think they have a really good lineup and good exposure to the emerging markets,” he said of Kellogg.

Sekera also pointed out a few dividend stocks that are positioned to capitalize on long-term secular growth trends, such as Medtronic (MDT) in the medtech space, Digital Realty (DLR) for its specialized data center investments. and Eastman Chemical (EMN). “That would be a stock that I’m thinking is going to be leveraged to the transition from automobiles to electric vehicles from internal combustion engines,” he explained of the latter.

Those stocks and more can be found below, along with each company’s ticker, market cap, price discount and dividend yield.