Morgan Stanley (NYSE:MS) has announced that it will be increasing its dividend on the 15th of November to US$0.70. This takes the annual payment to 2.1% of the current stock price, which is about average for the industry.
Morgan Stanley's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Morgan Stanley is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
EPS is set to fall by 5.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 33%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Morgan Stanley Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2011, the first annual payment was US$0.20, compared to the most recent full-year payment of US$2.80. This means that it has been growing its distributions at 30% 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 Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. Morgan Stanley has seen EPS rising for the last five years, at 25% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
We'd also point out that Morgan Stanley has issued stock equal to 14% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Our Thoughts On Morgan Stanley's Dividend
Overall, we always like to see the dividend being raised, but we don't think Morgan Stanley will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Morgan Stanley (2 don't sit too well with us!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
Valuation is complex, but we're helping make it simple.
Find out whether Morgan Stanley is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.