Morningstar’s Picks for Dependable Dividend Income

Morningstar recently identified three dividend-paying stocks that it considers among the best for investors seeking reliable passive income—particularly those in or near retirement. The firm's analysts emphasize dividend security, price stability, and appreciation potential alongside high yields, warning that the highest yields often come with greater risk.

The three stocks are consumer-products giant Clorox, food-and-beverage leader PepsiCo, and net-lease REIT Realty Income. As of July 24, 2026, each traded at a discount to Morningstar's fair value estimate: Clorox 38% below, Pepsi 19% below, and Realty Income 9% below. All boast long track records of raising dividends—Clorox and Realty Income for more than 25 consecutive years, and Pepsi for over 50 years, earning the title of "Dividend King."

Morningstar's selection process filters for high dividend yields, wide competitive moats, and undervalued shares, aiming to find companies that can sustain and grow their payouts over time. The firm also points to dividend ETFs as a one-stop solution for those who prefer a diversified, hands-off approach.

What Makes These Stocks Stand Out for Income Investors

Clorox: Deep Value and a Wide Moat

Clorox has faced pandemic hangover, cost inflation, and a cyberattack, but Morningstar sees the wide-moat company investing in innovation and advertising to preserve its competitive edge. The 38% discount to the $155 fair value estimate suggests the market may be underestimating its ability to maintain a dividend that has grown for at least 25 years. Analysts expect mid-single-digit annual dividend growth and a payout ratio around 60% in the longer term.

Pepsi: Dividend Growth Despite Headwinds

Consumer belt-tightening and shifting tastes towards healthier options have pressured Pepsi's snack and beverage portfolio. Still, Morningstar believes efforts to improve value are gaining traction. The stock's 19% discount to a $169 fair value estimate and a five-year dividend-growth rate highest among the three make it appealing. The payout ratio is projected to stabilize in the low 70s, with mid-single-digit annual dividend hikes.

Realty Income: Monthly Payouts from a REIT

As a real estate investment trust, Realty Income must distribute at least 90% of taxable income to shareholders. Its long-term net leases generate a slow but reliable rental stream, supporting a monthly dividend that has risen for over 25 years. With the stock 9% below Morningstar's $72 fair value estimate and the REIT sector performing well in 2026, the income stream appears especially stable.

How to Apply This to Your Own Dividend Portfolio

  • Add undervalued dividend growers to your watchlist. Clorox (38% undervalued), Pepsi (19%), and Realty Income (9%) all trade below Morningstar's fair value estimates and have durable dividend histories. For income-focused portfolios, these discounts may offer an entry point.
  • Check payout ratios and competitive advantages. A sustainable dividend requires a manageable payout ratio—Pepsi's low 70s and Clorox's ~60% are in comfortable territory—and a wide economic moat, which all three possess according to Morningstar.
  • Consider a diversified dividend ETF. If picking individual stocks feels too hands-on, low-cost dividend ETFs provide instant diversification. Morningstar notes they are easy to buy and sell, making them a practical alternative for passive income seekers.