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The board of Morgan Stanley (NYSE:MS) has announced that it will pay a dividend on the 14th of February, with investors receiving $0.925 per share. The payment will take the dividend yield to 2.7%, which is in line with the average for the industry.
View our latest analysis for Morgan Stanley
Morgan Stanley's Projected Earnings Seem Likely To Cover Future Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Morgan Stanley was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 27.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 43% by next year, which is in a pretty sustainable range.
Morgan Stanley Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.20 in 2015 to the most recent total annual payment of $3.70. This means that it has been growing its distributions at 34% per annum 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 Has Growth Potential
The company's investors will be pleased to have been receiving dividend income for some time. Morgan Stanley has impressed us by growing EPS at 8.6% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Morgan Stanley that investors need to be conscious of moving forward. Is Morgan Stanley not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.