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Morgan Stanley (MS) to Hike Dividend Once the Fed Permits

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In the annual letter to shareholders, Morgan Stanley’s (MS - Free Report) CEO James Gorman disclosed plans to hike quarterly dividend, once the restrictions on the same are removed by the Federal Reserve. Additionally, certain long-term financial targets were revealed in the letter.

Gorman noted, “In addition to recommencing our share repurchase program this year, we also plan to increase our dividend when restrictions are lifted by the Federal Reserve.” For 2021, Morgan Stanley has authorized $10 billion worth of share repurchase plan.

Last year, following the coronavirus outbreak, large banks including Morgan Stanley, JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Goldman Sachs (GS - Free Report) and Citigroup stopped dividend hikes and suspended buybacks, given the Fed’s restrictions on the same. The aim was to preserve liquidity amid the coronavirus mayhem and subsequent economic slowdown.

Nonetheless, following the second round of stress test in December, the central bank permitted banks to resume buybacks effective 2021. However, total distributions are limited to the bank's trailing four-quarter average net income. The restrictions of dividend hike are still in place. But this will likely change once this year’s stress test results are out by June-end.

The past six months have been quite eventful for Morgan Stanley. Despite the pandemic and resultant uncertainty, the company completed the acquisitions of Eaton Vance (in March 2021) and E*Trade Financial (in October 2020). These deals have significantly improved the company’s market share in asset management and brokerage businesses, as well as helped diversify revenues.

Thus, with the support from these deals and other initiatives like investment in technology, Morgan Stanley targets efficiency ratio to be below 70% over the long term. Further, the company projects pre-tax margin of more than 30% for the Wealth Management segment. It plans to achieve a return on tangible common equity of more than 17%.

Over the past year, shares of Morgan Stanley have soared 111.3%, outperforming the industry's 101.1% rally.

Currently, Morgan Stanley carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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