Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Morgan Stanley in Focus
Based in New York, Morgan Stanley (MS) is in the Finance sector, and so far this year, shares have seen a price change of 8.61%. The investment bank is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 2.52% compared to the Financial - Investment Bank industry's yield of 0.74% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $1.40 is up 7.7% from last year. Over the last 5 years, Morgan Stanley has increased its dividend 5 times on a year-over-year basis for an average annual increase of 25.32%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Morgan Stanley's payout ratio is 28%, which means it paid out 28% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MS for this fiscal year. The Zacks Consensus Estimate for 2020 is $5.36 per share, with earnings expected to increase 7.63% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MS presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).