Morningstar's Top 10 Dividend Stocks for 2025
"We found a hidden gem yielding 9%" - We're excited to introduce the 2025 dividend stock portfolio selected by Morningstar's Chief Market Strategist, one of the world's leading investment research firms.
While some picks underperformed in the first half of 2025, experts view this as an 'even better entry opportunity.' Particularly noteworthy are a chemical company offering the market's highest 9% dividend yield and a logistics giant providing 6.5% returns.
As we enter the second half of 2025, four stocks from the first-half recommendations have been removed and four new stocks have been added. Let's explore these changes together.
📊 Executive Summary
- Recommended Dividend Stocks: 10 picks, average dividend yield 6.2%
- Highest Dividend Yield: Lyondell (LYB) at 9%
- New Additions: KeyBank, Energy Transfer, Lyondell, Eversource
- Removed Stocks: Johnson & Johnson, Bristol-Myers, Devon Energy, FirstEnergy
- Core Strategy: Defensive sectors focus, minimal tariff impact
🏢 About Morningstar
Morningstar is the world's largest independent investment research firm, founded in 1984, providing trusted investment information and analysis to investors globally. Their 'star rating system' (1-5 stars) and 'economic moat' analysis are considered industry standards.
This dividend stock selection is led by Dave Sekera, Morningstar's Chief Market Strategist, who brings over 30 years of investment experience and is recognized as an authority in value investing and dividend strategies.
📈 Mid-Year 2025 Performance Review
The performance of the 10 recommended stocks from January has been 'mixed' - exactly half showed gains while half declined.
Key Underperformers and Analysis
1. UPS - Biggest Decline
- Current Dividend Yield: 6.5% (highest among wide-moat companies)
- Decline Reasons:
- Amazon contract termination (low-margin business but market overreacted)
- Economic slowdown concerns affecting cyclical stocks
- Expert Opinion: Market overestimating growth slowdown impact; long-term profitability unchanged
2. Kraft Heinz (KHC) - 5-Star Undervalued Stock
- Current Dividend Yield: 6.2%
- Current Price: About 50% of long-term fair value
- Decline Reasons:
- Food sector margin pressure (delayed inflation response)
- GLP-1 weight loss drug concerns (snack & dessert companies)
- Expert Opinion: Market overestimating long-term impact of weight loss medications
🏠 REITs Sector Analysis
Healthpeak (DOC) - Hidden Gem in Medical Real Estate
- Dividend Yield: 7.1%
- Discount Rate: 40% below fair value
- Investment Highlights:
- Focus on medical office buildings and life sciences (most defensive real estate)
- High-quality portfolio trading at mid-tier pricing
- Expected 4% annual dividend growth
- Long-term Catalyst: Aging baby boomers driving healthcare demand
🆕 Four New Additions Analysis
1. Eversource (ES) - Best Utility Sector Returns
- Dividend Yield: 4.7%
- Discount Rate: 14% below fair value
- Investment Case:
- Best total returns outlook in utility sector
- Indirect beneficiary of AI power demand
- 6% long-term earnings growth expected
2. KeyBank (KEY) - Regional Banking Recovery
- Dividend Yield: 5.2%
- Discount Rate: 17% below fair value
- Investment Points:
- Regional banks fell sharply after Silicon Valley Bank collapse but most have recovered
- Continued net interest income improvement expected
- Attractive dividend yield opportunity
3. Energy Transfer (ET) - MLP Returns
- Dividend Yield: 7.23%
- Discount Rate: 15% below fair value
- Important Note:
- Not suitable for tax-deferred accounts (IRA, 401k)
- Recommended only for taxable accounts
- Defensive characteristics with high dividend yield appeal
4. Lyondell (LYB) - 9% Ultra-High Yield Chemical Stock
- Dividend Yield: 9%
- Discount Rate: 40%+ below fair value
- Investment Case:
- 5-star rating with narrow economic moat
- Market over-pricing recession probability
- Strong balance sheet and cash flows support dividend sustainability
- Risk: Chemical industry cyclical volatility
❌ Four Removed Stocks and Reasons
1. Johnson & Johnson (JNJ)
- Removal Reason: Stock up double market return this year, reducing attractiveness
- Current Status: Still recommended as core holding but not for new purchases
2. Bristol-Myers (BMY)
- Removal Reason: Trump administration pharmaceutical pricing policy concerns
- Risk: Potential 'most favored nation pricing' implementation creating negative sentiment
3. Devon Energy (DVN)
- Removal Reason: Fair value estimates cut twice this year
- Background: Declining drilling efficiency relative to oil production costs
4. FirstEnergy (FE)
- Removal Reason: Eversource emerged as more attractive alternative
- Current Status: Still 4-star stock but relatively less appealing
📋 Final 2025 Top 10 Dividend Stock Picks
| Rank | Company | Ticker | Dividend Yield | Sector |
|---|---|---|---|---|
| 1 | Lyondell | LYB | 9.0% | Chemicals |
| 2 | Healthpeak | DOC | 7.1% | REITs |
| 3 | Energy Transfer | ET | 7.23% | Energy (MLP) |
| 4 | UPS | UPS | 6.5% | Logistics |
| 5 | Kraft Heinz | KHC | 6.2% | Food |
| 6 | Realty Income | O | 5.6% | REITs |
| 7 | KeyBank | KEY | 5.2% | Financials |
| 8 | Eversource | ES | 4.7% | Utilities |
| 9 | Verizon | VZ | 6.19% | Telecom |
| 10 | Portland General | POR | 4.91% | Utilities |
🌐 Tariff Policy and Dividend Stock Strategy
Favorable Environment for Dividend Stocks
According to Morningstar analysis, tariff policies are expected to be relatively favorable for dividend-rich defensive sectors:
- Utilities: Domestic-focused business with minimal tariff impact
- Healthcare: Essential nature ensures demand stability
- Consumer Staples: Ability to pass through tariff costs plus defensive characteristics
Current Market Conditions and Investment Opportunities
- Value Stocks: 14% discount to fair value (attractive)
- Growth Stocks: 11% premium to fair value (reduce weighting recommended)
- Investment Strategy: High dividend yield + wide margin of safety = stable returns regardless of market cycles
💡 Practical Investment Advice
Phased Purchase Strategy
Morningstar experts recommend 'starting with smaller positions and adding on declines':
- Initial Purchase: 50% of target allocation
- Additional Purchases: Dollar-cost averaging on price declines
- Long-term Holding: Focus on long-term perspective over 6-month performance
Portfolio Construction Considerations
- Individual Stock Selection: Some sectors favor individual stocks over ETFs
- Example: Consumer staples sector ETFs are weighted toward overvalued stocks like Walmart and Costco, making individual food stocks preferable
- Risk Management: MLPs only in taxable accounts, sector diversification essential
🔮 Second Half 2025 Outlook
Key Dates and Risk Factors
- Mid-July: First deadline for tariff negotiations with EU, Japan, India, Canada
- July 15: Major bank earnings season begins
- Mid-August: China tariff negotiation deadline
Investment Strategy Direction
Dave Sekera emphasized defensive positioning in what feels like being in the 'eye of a hurricane':
"We see a lot of value in high-dividend-paying stocks that are already trading at a wide margin of safety that you can be pretty confident to own those through any kind of market cycle. If I'm wrong, we get through all of this unscathed, you're still going to be positioned in high-dividend-paying stocks at a pretty low valuation, which I think over time will give you some pretty attractive returns."
📚 Conclusion: Key Messages for Dividend Investors
While mid-year 2025 performance was mixed, Morningstar interprets this as a long-term investment opportunity. Particularly, stocks like Lyondell (LYB) offering the market's highest 9% dividend yield and UPS with 6.5% returns exemplify how 'declines create opportunities.'
The key is patience and diversification. By not getting swayed by short-term volatility and building systematic portfolios based on proven expert analysis, investors can secure stable dividend income in the second half of 2025 and beyond.
Original Article
Related Articles:
- Realty Income (O) 128th Dividend Increase
- JEPI vs JEPQ: Monthly Dividend ETF Comparison
- DGRO vs SCHD 2024 Performance Analysis