IBD’s Income Investor highlights top dividend plays. Banking giant Morgan Stanley (MS) is in focus as a top-value financial stock generating a strong and consistent yield.
The Wall Street legend fits the threshold of a strong dividend stock, offering a 3.46% annualized yield.
That is more than twice the average of S&P 500 companies, edging out Dow Jones rivals Goldman Sachs (GS) and JPMorgan Chase (JPM), which currently offer 2.61% and 2.96% yields, respectively.
Commercial bank stocks have been outperforming recently as investors bargain hunt for value names amid higher yields.
Morgan Stanley Wealth Management Strong; Investment Revenue Weak
Morgan Stanley offers a wide variety of financial services across five continents and through three divisions: Institutional Securities, Wealth Management and Investment Management. It completed the $13 billion acquisition of E-Trade in October 2020, bolstering the bank’s wealth of assets.
With a lowly 13 P/E ratio, the financial giant currently trades as a value stock, with a 0.8 multiple compared to the S&P 500 index. Its Composite Rating has now lifted to 81, highlighting improved performance in recent months.
Earnings surged after the pandemic turned endemic, lifting from $6.56 per share in 2020 to $8.22 last year. However, rising inflation has impacted 2022 metrics, dropping EPS to two-year lows.
Morgan’s investment banking revenue plunged 55% in the third quarter, with the decline largely due a tough environment for capital investment, mergers and acquisitions.
In contrast, wealth management reported strong Q3 resiliency, with moderate revenue growth from last year. As we know, high wage earners are doing well in this mixed economic environment, despite inflationary headwinds.
Strong Balance Sheet
The company has a strong balance sheet without much leverage, with debt upgraded to “A-” from S&P earlier this year. It had 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 prior quarter.
Looking forward, analysts are forecasting a profit of $7.52 per share in 2023, which is impressive as a global recession looms. 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 strength in the short term, up about 0.5% on Wednesday, and above their 50- and 200-day moving averages.
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