Morgan Stanley says these 3 reliable dividend stocks should be on your buy list (especially right now)

Morgan Stanley says these 3 reliable dividend stocks should be on your buy list (especially right now)

Major investment bank Morgan Stanley has been warning of increasingly difficult economic conditions for several months, and US chief equity strategist Mike Wilson led a recent note on the topic of defensive investing, particularly investing dividends.

Wilson lays out a clear strategy for dividend investors, starting with the fact that the best dividend stocks, by their very nature, provide a secure and stable income stream that will provide investors with protection in any market environment.

“We believe the ‘dividend sweet spot’ is not about finding the highest yielding stock,” says Wilson, “but about finding consistent companies that can increase their dividend year after year and have a proven track record . It is this underlying stability combined with the dividend payout that can provide a cushion of protection during periods of market turbulence – such as today’s environment.”

Against this background, the analysts at Morgan Stanley have selected stocks that offer investors some of the most reliable dividends available. Using the TiipRanks platform, we’ve compiled the data on three of those options. Let’s jump in.

Philip Morris International Inc. (PM)

The first stock we will look at, Philip Morris, is famous as one of the largest tobacco companies in the world, and owner of the venerable Marlboro brand of cigarettes. While cigarettes and other smoking products make up the lion’s share of the firm’s sales, PM is placing a strong emphasis on its smokeless product lines. These include vapes, heated tobacco products, and oral nicotine pouches. The company regrets that its smokeless products, especially the heated tobacco lines, have helped more than 13 million adult smokers worldwide quit smoking.

The company’s dividend is worth a close look, as it offers investors a reliable payout with a long-term history of steady growth. PM first started paying the dividend in 2008, when it went public; since then, the company has not missed a quarterly payment – ​​and the dividend has been raised every year, with a CAGR of 7.5%. The current quarterly dividend payment is $1.27 per share, up 2 cents from the previous quarter. The dividend is $5.08 per common share, and yields a strong 5.3%. The newly increased dividend is due to be paid on 27 September.

The dividend payment is supported, and fully covered, by PM’s ordinary quarterly earnings, which came in at $1.32 per diluted share in 2Q22. Philip Morris is targeting full-year diluted EPS in the range of $5.73 to $5.88, which is good news for dividend investors, as reaching that target will keep the dividend easily affordable for the company.

Analyst Pamela Kaufman, who covers this tobacconist for Morgan Stanley, points to the company’s growing sales of smokeless products, as well as its generally sound financial position, in recommending the stock.

“The Q2 results demonstrate many of the key tenets of our thesis, including attractive IQOS momentum to accelerate new IQOS user growth, solid combustible fundamentals with positive international cigarette market share/volumes, and increased fundamental guidance,” said Kaufman.

Looking ahead, Kaufman rates PM Overweight (ie Buy), and sets a $112 price target for ~16% upside potential. (To view Kaufman’s track record, Click here)

Overall, Philip Morris shares have a Moderate Buy consensus from the Street, based on 7 reviews that include 4 Buys and 3 Holds. (See PM stock forecast on TipRanks)

Citizens Financial Group, Inc. (CFG)

First up is Citizens Financial Group, a retail banking firm in the US markets. Citizens Financial is based in Rhode Island, and operates through 1,200 branches in 14 states, centered in New England but extending into the Mid-Atlantic and Midwest regions. Retail and commercial customers can access a full range of services, including checking and deposit accounts, personal and small business loans, wealth management, even foreign exchange. For customers who cannot reach a branch office, CFG offers mobile and online banking, and more than 3,300 ATM machines.

Citizens Financial saw revenue of more than $2.1 billion in 2Q22, a year-over-year jump of 23.5%. Earnings came in below expectations; at $364 million, net income was down 43% y/y, and EPS, at 67 cents, was less than half the $1.44 reported in the year-ago quarter.

Despite the drop in earnings and share value, Citizens Financial felt confident enough to expand its capital return program. The Board authorized, in July, share repurchases of up to $1 billion, an increase of $250 million from the previous authorization.

At the same time, the company also announces an 8% increase in its quarterly common share dividend payment. The new payment, 42 cents per share, went out in August; it annualizes to $1.68 and yields 4.5%. Citizens Financial has a history of reliable dividend payments and regular increases dating back to 2014; the dividend has been raised twice in the last three years.

This stock has caught the eye of Morgan Stanley’s Betsy Graseck, who outlines a very happy case for buying into CFG.

“We are Overweight Citizens because of our above-peer earnings growth driven by multiple broad-based drivers, including our differentiated loan categories that drive loan growth better than peers, disciplined expense management, and bottom-line EPS over from fee-based acquisitions. ,” wrote Graseck.

Graseck’s Overweight (ie Buy) rating comes with a $51 price target. If her thesis were to pan out, a twelve month gain of ~37% could be in the cards. (To view Graseck’s track record, Click here)

Financially sound banking firms are sure to raise Wall Street interest, and CFG shares have 13 recent analyst reviews on file, including 10 with Buy and 3 with Hold, giving the stock a strong consensus Buy rating. . The average target price of $46.85 implies a ~28% one-year gain from the trading price of $36.76. (See CFG stock forecast on TipRanks)

Abalone Bay (AVB)

The third Morgan Stanley pick we’re looking at is AvalonBay, a real estate investment trust (REIT) focused on apartment properties. REITs have a strong reputation for paying solid dividends; they are required by tax codes to return a certain percentage of profits directly to shareholders, and often use dividends to meet regulatory demands. AvalonBay owns, develops and manages multifamily developments in the New York/New Jersey metropolitan area, New England and the Mid-Atlantic regions, the Pacific Northwest, and California. The company focuses on properties in the main urban centers in its operating areas.

Rising rents have been a big part of the general rise in the inflation rate, and that’s reflected in AvalonBay’s top line. The company’s Q2 revenue of $650 million was the highest in two years. As for earnings, a ‘noisier’ metric, AvalonBay reported $138.7 million in net income attributable to stockholders; Diluted EPS came in at 99 cents per share, down from $3.21 in the year-ago quarter.

While earnings per share declined, the company reported a year-over-year gain in the key metric funds from operations (FFO) attributable to common stockholders. On a diluted basis, FFO increased 22% y/y, from $1.97 to $2.41. Dividend investors should note this, as REITs commonly use FFO to cover the dividend.

AvalonBay’s dividend was last paid out in July, at $1.59 per common share. The next payment, for October, has already been confirmed at the same rate. The $1.59 quarterly payout equates to $6.36 per common share, and yields 3.3%. AvalonBay has paid a quarterly dividend every quarter – without missing a beat – since it went public in 1994, and over the past 28 years the payout has averaged a 5% annual increase.

Morgan Stanley analyst Adam Kramer sees a path forward for this company, and explains why investors should get in now: “We think AVB can trade at a premium [peers] in our coverage given SS Revenue peers and strong FFO growth per share and a differentiated development program. We believe investors have a ‘free option’ on the development pipeline as the current stock price implies a multiple of ~19.7x to our ’23e FFO ex. external growth.”

Kramer uses these comments to support his Overweight (ie Buy) rating on the stock, and his price target, set at $242, suggests AVB has 26% upside potential ahead of him. (To view Kramer’s track record, Click here)

Overall, AVB shares have 8 Leads and 11 Holds, making the analyst consensus rating here a Moderate Buy. The stock is the most expensive on this list, at $190.87 per share, and the average target price of $226.17 is indicative of ~18% upside potential for the coming months. (See AVB stock forecast on TipRanks)

For great ideas on trading dividend stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unifies all of TipRanks’ equity insights.

Denial: The views expressed in this article are solely those of the analysts in question. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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