Stock Analysis

Morgan Stanley's (NYSE:MS) Upcoming Dividend Will Be Larger Than Last Year's

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NYSE:MS
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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.

Check out our latest analysis for Morgan Stanley

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.

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NYSE:MS Historic Dividend October 17th 2021

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.

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