IBD’s Income Investor highlights the top dividend plays. A banking giant Morgan Stanley (MS) in focus as a high value financial stock that generates strong and consistent returns.
The Wall Street legend lies at the threshold of a strong dividend stock, offering an annual yield of 3.46%.
That’s more than double the average of S&P 500 companies, edging out Dow Jones rivals Goldman Sachs (GS) and JPMorgan Chase (JPM), which offer yields of 2.61% and 2.96% respectively.
Commercial bank stocks have been outperforming recently as investors seek value names amid higher yields.
Morgan Stanley Wealth Management Strong; Poor Investment Income
Morgan Stanley offers a wide range of financial services across five continents and three divisions: Institutional Securities, Wealth Management and Investment Management. It completed the $13 billion acquisition of E-Commerce in October 2020, adding to the bank’s wealth of assets.
With a low P/E ratio of 13, the financial giant currently trades as a value stock, with a multiple of 0.8 compared to the S&P 500 index. Its Composite Rating has now risen to 81, indicating improved performance in recent months.
Earnings rose after the pandemic turned endemic, rising from $6.56 per share in 2020 to $8.22 last year. However, 2022 metrics were impacted by rising inflation, causing EPS to drop to two-year lows.
Morgan’s investment banking revenue fell 55% in the third quarter, the main reason for the decline being a tough environment for capital investment, mergers and acquisitions.
In contrast, wealth management reported strong Q3 resilience, with moderate revenue growth from last year. As we know, high wage earners are doing well in this mixed economic environment, despite inflation.
Strong Balance Sheet
The company has a strong balance sheet with little leverage, and debt was upgraded to “A-” by S&P earlier this year. It has paid dividends continuously since the Great Recession of 2008-09.
Further dividend increases and share buybacks are likely. Morgan Stanley bought back $2.6 billion in shares in the previous quarter.
Looking ahead, analysts are predicting a profit of $7.52 per share in 2023, which is impressive in the face of a global recession. If the investment bank hits that mark, MS stock should provide strong value, a solid dividend and steady income growth.
Morgan Stanley shares are trading with near-term strength, up about 0.5% on Wednesday, and above their 50- and 200-day moving averages.
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