Morgan Stanley (NYSE:MS) Is Due To Pay A Dividend Of $0.925

The board of Morgan Stanley (NYSE:MS) has announced that it will pay a dividend on the 15th of November, with investors receiving $0.925 per share. This will take the annual payment to 3.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Morgan Stanley

Morgan Stanley's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. 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.

Looking forward, earnings per share is forecast to rise by 23.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 53% by next year, which is in a pretty sustainable range.

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. The dividend has gone from an annual total of $0.20 in 2014 to the most recent total annual payment of $3.70. This implies that the company grew its distributions at a yearly rate of about 34% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Morgan Stanley has been growing its earnings per share at 6.8% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Morgan Stanley that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.