Dividends, the share of their revenues that companies pay to their shareholders, are a big deal: Over the past century, they’ve accounted for roughly half of total returns earned by stock investors. And if stock returns flatten out over the next few years, as many economists anticipate, dividends will matter even more in driving growth for investors.
But these days, it’s unusually difficult to find dividend-paying stocks that look like good buys. Stock valuations in the category are lofty after years of outperforming the broader market. The forward price/earnings ratio of the top 25% of S&P 500 stocks by dividend yield is 17, vs. a 36-year average of 12, according to Ned Davis Research. And the dividends themselves can seem relatively stingy: The number of companies increasing their dividend has been shrinking, and the number of decreases is accelerating. And there’s also the danger that if interest rates rise, as is expected, investors could flee the sector and send stocks careening downward.
With those pitfalls in mind, Fortune talked with five veteran mutual fund managers who specialize in dividend stocks, getting their takes on what’s happening in the markets. For a more detailed breakdown of their analyses, see this feature in our Investor’s Guide issue. In the meantime, here are 11 stocks where the experts see opportunity and safety.
1. Air Products & Chemicals (apd), an industrial gas company, is a favorite stock of Phil Davidson, American Century’s chief investment officer and manager of its Equity Income fund. Industrial gas is a realm with a high barrier to entry; just a handful of operators control almost all the market. Recent asset sales have helped Air Products & Chemicals focus on high-quality core assets, fire up its return on capital, and pay down debt. The shares have sold off because of macro issues, like worries about a global slowdown, but Davidson views that as a transitory blip.
2. Comcast (cmcsa), the cable giant, may seem like an odd fit for the list. It pays a modest 1.8%, below the S&P 500 average of about 2%. But Tom Huber, the manager of the T. Rowe Price Dividend Growth Fund, praises its best-in-class balance sheet, savvy management, and “underappreciated” performance—including the improving profits of its NBC unit. Comcast has been increasing its dividend at a healthy 20% clip for the past five years and has room to bolster it further. Combine that with stock buybacks and share-price increases, and Huber foresees double-digit annual returns.
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3. Costco (cost) tells a dividend story similar to Comcast’s. The big-box chain has a yield in line with its frugal prices—a bargain-basement 1.2%—but that dividend has been rising 24% a year over the past 10 years. The company’s management (for more, see our feature on Costco in the Dec. 15 issue of Fortune) and history of earnings growth earn rapturous reviews from Don Kilbride of Wellington Management, who oversees Vanguard’s Dividend Growth Fund: “I could talk forever about Costco.”
4. L Brands (lb) is a clothing retailer that owns the likes of Victoria’s Secret and Bath & Body Works. Ramona Persaud, manager of Fidelity’s Global Equity Income Fund, likes the company’s “shrewd” instincts and its knack for delivering a return on capital “far superior to the market,” an average of about 27% over the past five years. Despite that, L Brands shares trade at a valuation roughly equal to the overall market’s. The stock’s yield is 3.4%, and the payout has been growing at a 25% annual clip since 2011.
5. Medtronic (mdt), the Ireland-based medical device maker, looks promising in part because it’s European, according to Persaud. The prevalence of public pensions in the U.K., which require ongoing cash streams to service their obligations, has helped to create a market culture that values higher yields. Medtronic’s yield: 2.1%, slightly higher than the S&P 500.
6. Microsoft (msft) is one of the tech industry’s true cash machines. The company’s enterprise business, which accounts for the vast majority of its revenues and profits, has locked in gushers of ongoing revenue. Michael Reckmeyer, a portfolio manager of Hartford Equity Income, notes that that’s a sticky business—big companies don’t change their tech setups easily—and Microsoft’s cloud and database businesses are dhelping mitigate the secular decline of desktop software. To be sure, Microsoft’s price/earnings ratio has surged, to 18.3, after a nice run. But even at that level the shares offer a substantial yield (2.6%), and the dividend has been raised for 12 years running.
7. Nike (nke) is an excellent representative of the two factors Kilbride of Wellington looks for: companies that are creating value and making a habit of distributing that value to shareholders. Fat margins and plenty of free cash flow are both “top of class,” and earnings per share have been growing at a double-digit rate for years. That operating wizardry has allowed the sports-apparel Goliath to push its dividend up steadily, at 18% a year over the past decade, an “astonishingly good number,” says Kilbride. (Current yield: 1.3%.) And yet the “payout ratio” of dividends to profits remains a modest 22%, which indicates Nike can easily afford more shareholder raises in the future.
8. PepsiCo (pep) is one of the rare companies that qualify as Dividend Aristocrats, having raised their payouts for 25 straight years or more. A strong mix of beverages and snacks has meant plenty of free cash flow and 10% annual dividend bumps for the past 10 years, making for a 2.9% current yield. Huber of T. Rowe Price foresees high-single-digit earnings-per-share growth, and 15% share-price upside in the next couple of years, even before factoring in yield.
Related: The Dividend Conundrum
9. Schlumberger (slb), the oil and gas services giant, has a dominant market share and stable underlying businesses, but its relationship to volatile oil prices buffets the stock quite a bit. Still, Davidson of American Century points out that Schlumberger shrewdly uses the periodic downturns to improve its competitive position, buying companies on the cheap. Combine that with a sparkling balance sheet and its history of never cutting its dividend—the yield is now 2.5%—and its beaten-down share price (down by a third over the past two years) looks like an opportunity to pick up a high-quality bargain.
10. Union Pacific (unp), the largest railroad operator in the U.S., also makes Michael Reckmeyer’s “nice” list. When the carrier’s 2015 volumes fell because of external forces, such as collapsing oil prices, Reckmeyer saw an opportunity. Rebounding crude prices, lower coal and grain inventories, and a cost-cutting regimen have all begun working in Union Pacific’s favor since then, with the stock having risen 17.5% in the past year. Perhaps best of all: The firm essentially has a number of regional monopolies around the country, and hence the pricing power to generate some impressive margins. Its yield: 2.3%.
11. VF Corp. (vfc), the $23-billion-in-sales parent company of brands ranging from the North Face to Timberland to Lee jeans, also makes Persaud’s list. The retailer’s stock has slipped 10% so far this year, lowering its forward P/E to 16.4. Now could be a handy moment to buy VF shares and profit from their 2.9% yield.
This article is part of Fortune’s 2017 Investor’s Guide, which appears in the Dec. 15, 2016 issue of Fortune magazine.