Dividend investors often face a difficult trade-off. Many dividend stocks offer high payout ratios but are trading at a premium to their fair value, whereas others look attractively priced but offer low or inconsistent income.
The most promising opportunities tend to sit at the intersection of those worlds: companies that can steadily grow their dividends, maintain healthy dividend yields, have an economic moat and still trade at reasonable valuations.
What Is a Dividend Leader?
To identify such opportunities, investors may want to focus on so-called Dividend Leaders—companies that combine four important characteristics:
- A proven history of dividend growth.
- An attractive forward dividend yield.
- A Morningstar Economic Moat Rating of Narrow or Wide.
- A discount to Morningstar’s fair value estimate.
Together, these factors can help investors identify businesses capable of delivering both income and long-term shareholder returns.
The Morningstar Europe Dividend Yield Focus Index provides a useful hunting ground for finding such companies. Rather than collecting the highest dividend yields available, the index attempts to identify companies capable of maintaining and growing those dividends over time.
This distinction is important because an unusually high yield can be a warning sign rather than an opportunity, reflecting a falling share price caused by deteriorating fundamentals or financial stress. By incorporating measures such as Economic Moat Ratings and Distance to Default scores, the index seeks to avoid so-called “dividend traps” and focuses instead on businesses with durable competitive advantages, resilient balance sheets, and stable cash flow generation.
The result is a concentrated portfolio of around 100 European dividend-paying companies that typically offers a significantly higher yield than the broader European equity market. Several of the index’s members are trading well below their Morningstar fair value estimates, making them undervalued.
To identify Dividend Leaders, we screened the constituents of the Morningstar Europe Dividend Yield Focus Index for attractive forward dividend yields, a history of dividend growth, a Narrow or Wide Economic Moat Rating, and meaningful discounts to Morningstar fair value estimates. Five European Dividend Leaders stand out.
Here’s a little bit about each dividend leader on the list. All data is as of June 9, 2026.
Croda International CRDA
- Sector: Basic Materials
- Morningstar Rating: ★★★★★
- Economic Moat: Narrow
- Price/Fair Value: 0.57
- Forward Dividend Yield: 3.88%
Diana Radu, equity analyst for Morningstar, says: “Shareholder distributions are appropriate. Company policy is to pay a regular dividend to shareholders representing 40%-50% of adjusted earnings over the business cycle. In practice, this has resulted in a dividend that has been raised annually for nearly 30 years.”
See Croda International’s dividends per share and other data.
Reckitt Benckiser Group RKT
- Sector: Consumer Defensive
- Morningstar Rating: ★★★★★
- Economic Moat: Wide
- Price/Fair Value: 0.67
- Forward Dividend Yield: 4.76%
Diana Radu, equity analyst for Morningstar, says: “Reckitt’s approach to shareholder distributions is appropriate. Reckitt has a progressive dividend policy and has increased dividends by 5% per year over the last two years, which we expect will continue over the midterm. Since October 2023, the company launched two share buyback programs for the amount of GBP 1 billion each. The latest buyback program with around a GBP 1 billion amount was announced in early 2026. We believe these decisions were timely given the pronounced share price weakness experienced in recent years.”
See Reckitt Benckiser’s dividends per share and other data.
Partners Group PGHN
- Sector: Financial Services
- Morningstar Rating: ★★★★
- Economic Moat: Narrow
- Price/Fair Value: 0.72
- Forward Dividend Yield: 6.45%
Johann Scholtz, equity analyst for Morningstar, says: “We like that the firm’s founders receive the bulk of their rewards in dividends and share price appreciation, together with other shareholders. Once again, this is a sharp contrast to the practice at many of its peers, where the founders, even though not active in dealmaking anymore, receive a large share of carried interest, appropriating a larger share of profits than what their shareholding would entitle them to.”
See Partners Group’s dividends per share and other data.
Deutsche Telekom DTE
- Sector: Communication Services
- Morningstar Rating: ★★★★
- Economic Moat: Narrow
- Price/Fair Value: 0.73
- Forward Dividend Yield: 3.62%
Javier Correonero, equity analyst for Morningstar, says: “Deutsche Telekom’s dividend for fiscal 2025 is EUR 1.00, an 11% increase versus 2024. We expect a dividend above EUR 1.10 in 2026, with low-teens growth thereafter. DT’s dividend yield is lower than that of other peers, but there’s no risk of dividend cuts while the firm has room to grow dividends at a low-teens rate supported by EBITDA and free cash flow generation.”
See Deutsche Telekom’s dividends per share and other data.
Spirax Group SPX
- Sector: Industrials
- Morningstar Rating: ★★★★
- Economic Moat: Wide
- Price/Fair Value: 0.75
- Forward Dividend Yield: 2.51%
Matthew Donen, equity analyst for Morningstar, says: “Debt levels are conservative and comfortably managed despite increased borrowings since 2016 to fund acquisitions. Dividend distributions have also been well-balanced with business needs. Special dividends have also been paid in the past.”
See Spirax Group’s dividends per share and other data.
Why Dividend Growth Matters
Many investors focus exclusively on yield, but dividend growth can be just as important. A company that consistently increases its dividend often signals confidence in future earnings and cash flow generation. Over long periods, growing dividends can help investors offset inflation and significantly increase total returns. Businesses capable of sustaining dividend growth typically exhibit stronger fundamentals than those relying on unusually high payout ratios to attract investors.
Why Economic Moats Matter
The durability of dividend policies ultimately depends on the strength of the underlying business. Companies with Wide or Narrow Economic Moats benefit from competitive advantages that help protect profits from competitors. These advantages may come from strong brands, cost leadership, network effects, switching costs, or intangible assets. Such businesses are often better positioned to maintain earnings power throughout economic cycles, making them more reliable dividend payers over the long run.
Don’t Ignore Valuation
Even the highest-quality dividend stock can become a poor investment if purchased at too high a price. That’s why valuation remains a critical component of the Dividend Leaders framework. Buying companies trading below Morningstar’s fair value estimate may provide investors with an additional margin of safety while enhancing future return potential.
The Bottom Line
The best dividend investments are rarely defined by yield alone. Instead, investors should look for companies that combine growing dividends, maintainable competitive advantages, attractive income characteristics, and reasonable valuations.
These Dividend Leaders represent the type of businesses that income-focused investors may want to consider as they position their portfolios for 2026.
