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10 Dividend Stocks Held by Highly Rated Fund Managers (Update1)

(Story updated to add that Eli Lilly's CEO said the company wants to be the fastest-growing drug company in China.)

BOSTON ( TheStreet) -- Concerns that a stock market correction is overdue may be turning investors, particularly those near or in retirement, into yield hounds.

And since dividends on fixed-income securities are still at historically low levels, with the yield on 10-year U.S. Treasuries at less than 2.5%, they would do best to look for stocks with growing dividends being paid by high-quality companies, both for their yield and their potential share-price appreciation.

And given that definition, that means large-cap stocks, as there are really few other places to jump for the investor seeking a secure total return.

In addressing that interest, ratings and research firm Morningstar, which tracks the portfolio changes of 26 top-performing mutual funds for its "Ultimate Stock-Pickers" series, screened its funds list. It found the most dividend-focused funds with stocks that pay an annual yield greater than that of the S&P 500's 2% for last year.

Pharmaceutical and health-care stocks dominate the list, with five representatives. Although their share-price performances this year are poor, all hovering around break-even (compared with the S&P 500's 11.3% gain), they pay relatively high dividends with the prospect for continued increases given the world's population growth, and the rising demand for more and new types of drugs as the population ages.

Consider the highest-yielding stock in the pack, that of GlaxoSmithKline (GSK). The dividend yield is 5.86% and the shares are up 26% over the past 12 months, including this year's pedestrian 1% advance.

As one of the world's largest pharmaceutical companies, GlaxoSmithKline's dividend growth prospects and steady cash flow are relatively secure, given its huge list of patent-protected drugs. Its shares have yielded at least 4% annually since 2007. It is scheduled to pay a quarterly 66.3-cent dividend April 12, plus a 15.8-cent special dividend.

Here are the 10 most popular high-yielding dividend stocks among Morningstar's Ultimate Stock-Pickers funds, listed in inverse order of highest yield:

10. Unilever (UN)

Company profile: Unilever, with a market value of $101 billion, is a consumer-goods giant, the third-largest packaged food company in the world. It also sells household and personal products. Its brands include Knorr soups, Hellmann's mayonnaise, Ben & Jerry's ice cream, and Lipton teas.

Dividend Yield: 3%

Investor takeaway: Its shares are down 1.6% this year and have a three-year, average annual return of 27%. Analysts give its shares two "buy" ratings, three "holds," and one "weak hold," according to a survey of analysts by S&P. It is held by eight of the Ultimate Stock-Pickers funds.

9. General Electric (GE - Get Report)

Company profile: General Electric, with a market value of $212 billion, is a diversified manufacturer and is organized into four segments: technology infrastructure, energy infrastructure, home and business services, and capital services.

Dividend Yield: 3.3%

Investor takeaway: Its shares are up 12% this year and have a three-year, average annual return of 31%. Analysts give its shares seven "buy" ratings, eight "buy/holds," and four "holds," according to a survey of analysts by S&P. It's expected to earn $1.54 per share this year and it will grow 14%, to $1.76, in 2013. It is owned by six of the Ultimate Stock-Pickers portfolios.

8. ConocoPhillips (COP - Get Report)

Company profile: ConocoPhillips, with a $98 billion market value, is an international integrated energy company.

Dividend Yield: 3.4%

Investor takeaway: Its shares are up 5% this year and have a three-year, average annual return of 30%. Analysts give its shares four "buy" ratings, four "buy/holds," eight "holds," and four "sells," according to a survey of analysts by S&P. It's held by eight of the funds. It's expected to earn $8.56 per share this year, and that it will rise to $9.14 in 2013. It is held by eight of the Ultimate Stock-Pickers funds.

7. Vodafone (VOD)

Company profile: Vodafone, with a market value of $137 billion, is the second-largest wireless phone company in the world. That includes a 45% stake in Verizon Wireless (VZ).

Dividend Yield: 3.5%

Investor takeaway: Its shares are down 1% this year and have a three-year, average annual return of 24%. Analysts give its shares two "buy" ratings, three "buy/holds," one "hold," and one "weak hold," according to a survey of analysts by S&P. Morningstar analysts say Vodaphone "generates significant free cash flow, which it is using to increase dividends, make acquisitions, and reinvest in the business." It's owned by six of the funds.

6. Johnson & Johnson (JNJ - Get Report)

Company profile: Johnson & Johnson, with a market value of $177 billion, ranks as the world's biggest and most diverse health-care companies. It has three divisions: pharmaceuticals, medical devices and diagnostics, and consumer products.

Dividend Yield: 3.54%

Investor takeaway: Its shares are long-term underperformers. The stock is down 0.8% this year to $64.46. It has a three-year annualized return of 11%. Morningstar says that it "expects annual sales growth will average 5% during the next 10 years. Analysts give its shares 10 "buys," five "buy holds," and 14 "holds, according to S&P. It's expected to earn $5.12 per share this year, rising to $54.46 in 2013. It is held by 11 of the funds.

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SYM TRADE IT LAST %CHG
COP $64.79 0.61%
GE $25.86 -0.96%
JNJ $102.32 -0.87%
MRK $58.33 -0.43%
PFE $34.57 -0.58%

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