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Morgan Stanley (NYSE:MS) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of August to $0.775. This takes the dividend yield to 4.0%, which shareholders will be pleased with.
Check out our latest analysis for Morgan Stanley
Morgan Stanley's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Morgan Stanley's dividend was only 38% of earnings, however it was paying out 109% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to rise by 21.4% over the next year. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.
Morgan Stanley Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the annual payment back then was $0.20, compared to the most recent full-year payment of $3.10. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Morgan Stanley has been growing its earnings per share at 16% a year over the past five years. Morgan Stanley definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Morgan Stanley's payments are rock solid. While Morgan Stanley is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Morgan Stanley that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.