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 makes the dividend yield 4.0%, which is above the industry average.
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. Based on the last payment, Morgan Stanley was paying only paying out a fraction of earnings, but the payment was a massive 109% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
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. The annual payment during the last 10 years was $0.20 in 2012, and the most recent fiscal year payment was $3.10. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Morgan Stanley has grown earnings per share at 16% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Morgan Stanley's prospects of growing its dividend payments in the future.
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.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Morgan Stanley that investors should take into consideration. 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.
Morgan Stanley, a financial holding company, provides various financial products and services to corporations, governments, financial institutions, and individuals in the Americas, Europe, the Middle East, Africa, and Asia.
Adequate balance sheet average dividend payer.