From Morningstar: 2024-11-21 07:00:38

Investors should differentiate between low-quality stocks and higher-quality ones trading below fair value. Consistent income seekers should focus on companies with strong balance sheets. Morningstar evaluates valuations by looking at competitive advantages, cash flow management, and share price fluctuations. Six UK dividend-paying stocks with yields above 3% are identified, including GSK, Reckitt Benckiser, British American Tobacco, Diageo, Imperial Brands, and Unilever.

GSK is undervalued, trading at a 41% discount to fair value of £22.00. It has a 4.61% dividend yield and focuses on innovation in oncology and immune system treatments. Reckitt Benckiser, trading at a 27% discount to fair value of £65.00, recently saw a share price boost following a litigation win. British American Tobacco, trading at a 25% discount to fair value of £39.00, benefits from the addictive nature of its products.

Diageo, trading at a 9% discount to fair value of £25.90, has a 3.38% dividend yield and focuses on premiumization. Unilever, trading at a 4% premium to fair value of £43.80, has a wide moat and consistent growth. Imperial Brands, trading at fair value at £27.00, raised its dividend by 4.5% and prioritizes shareholder returns.

Identifying companies with strong competitive advantages is crucial for long-term investments. Companies with wide economic moats and predictable cash flows are key. While these companies offer potential returns, it’s essential to consider valuation before investing. Morningstar provides tools for creating customized stock pick lists based on extensive research.



Read more at Morningstar: The Best FTSE Dividend Stocks to Invest In