The vast majority of our Ultimate Stock-Pickers are not dividend investors. That said, a handful of them-- Amana Income (AMANX), Columbia Dividend Income (LBSAX), Oakmark Equity And Income (OAKBX), and Parnassus Core Equity (PRBLX)--focus more on income-producing stocks in their pursuit of investment return. Warren Buffett at Berkshire Hathaway (BRK.B) has spoken highly of companies that return capital to shareholders and is not against investing in and holding higher-yielding names. Three of Berkshire's top five holdings--wide-moat Wells Fargo (WFC), Bank of America (BA), and Coca-Cola (KO)--yield more than the S&P 500, and they account for about one third of the insurer's equity portfolio.
As you may recall from our previous dividend-themed articles, when we screen for top dividend-paying stocks among the holdings of our Ultimate Stock-Pickers we try to find the highest-quality names that are currently held with conviction by our top managers. We do this by taking an initial list of the dividend-paying stocks held in the portfolios of our Ultimate Stock-Pickers and then narrow it down by concentrating on firms that we believe have sustainable competitive advantages, which should allow them to generate the excess returns necessary to maintain their dividends over the longer term. We also look for firms where there is lower uncertainty on our analysts' part regarding their future cash flows. 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, have wide or narrow economic moats, and have uncertainty ratings of either low or medium.
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The Morningstar Ultimate Stock-Pickers Team does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.