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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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
Headquartered in New York, Morgan Stanley (MS) is a Finance stock that has seen a price change of -15.22% so far this year. The investment bank is currently shelling out a dividend of $0.93 per share, with a dividend yield of 3.47%. This compares to the Financial - Investment Bank industry's yield of 1.28% and the S&P 500's yield of 1.7%.
In terms of dividend growth, the company's current annualized dividend of $3.70 is up 4.2% from last year. In the past five-year period, Morgan Stanley has increased its dividend 4 times on a year-over-year basis for an average annual increase of 25.22%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Morgan Stanley's payout ratio is 47%, which means it paid out 47% of its trailing 12-month EPS as dividend.
MS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $8.42 per share, with earnings expected to increase 5.91% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MS is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).