Investment bank Morgan Stanley advises investors to consider dividend-paying stocks that not only have high yields but also demonstrate a track record of growth. Dividend-paying stocks have generally outperformed nondividend payers in all large-cap sectors since 2000, with the exception of consumer discretionary, according to Morgan Stanley. The bank argues that dividends provide a cushion during volatile market periods and that dividend growers tend to perform better over time compared to high-yielding stocks, which can be more volatile. These dividend payers will become increasingly important amid an economic backdrop of elevated but declining inflation.
Morgan Stanley has identified a number of top picks from their coverage. One of these is Energy Transfer, a company in the natural gas pipeline industry, which is rated overweight by analyst Robert Kad. The stock pays a dividend of 8.9% and has seen an almost 18% increase in shares in 2023. Another top pick is Mondelez International, known for Sour Patch Kids candy and Oreo cookies, which analyst Pamela Kaufman rates as overweight. The stock pays a dividend of 2.4% and has had a modest 4% increase in shares this year. Regions Financial, a bank based in Birmingham, Alabama, is also recommended as an overweight pick by analyst Betsy Graseck. It offers a dividend yield of 5.6% and is expected to grow its dividends by around 5% in 2024.
In conclusion, Morgan Stanley advises investors to focus on dividend-paying stocks that not only offer high yields but also demonstrate consistent growth. They argue that dividend payers provide a positive return cushion during market volatility, and dividend growers tend to outperform high-yielding stocks over time. The bank highlights top picks such as Energy Transfer, Mondelez International, and Regions Financial, which offer attractive dividend yields and potential for future growth. These recommendations come at a time when the economy is dealing with elevated but declining inflation, making income-oriented investments more important for investors.