Morgan Stanley Says These 3 Solid Dividend Stocks Should Be On Your Buy List (Especially Right Now)

Morgan Stanley Says These 3 Solid Dividend Stocks Should Be On Your Buy List (Especially Right Now)

Major investment bank Morgan Stanley has been issuing warnings about increasingly difficult economic conditions for several months, and the firm’s chief U.S. equity strategist, Mike Wilson, published a recent note on the topic of defensive investing, especially dividend investing.

Wilson lays out a clear strategy for dividend investors, starting with the fact that the best dividend stocks, by their very nature, provide an income stream that is safe and stable and will provide protection to investors in any market environment.

“We believe the ‘dividend sweet spot’ is not about finding the highest yielding stock,” says Wilson, “but about finding solid companies that can increase their dividend year over year and have a proven track record. It is this underlying stability combined with the dividend yield that can provide a defensive cushion during periods of market turbulence – similar to today’s environment.”

Against this backdrop, Morgan Stanley analysts have selected stocks that offer investors some of the most reliable dividends available. Using the TiipRanks platform, we gathered the details for three of these options. Let’s dive in.

Philip Morris International Inc. (AFTER NOON)

The first stock we’ll look at, Philip Morris, is known as one of the largest tobacco companies in the world and owner of the venerable Marlboro brand of cigarettes. While cigarettes and other smoking products make up the lion’s share of the company’s sales, PM emphasizes smokeless product lines. These include vaping, heated tobacco products and oral nicotine pouches. The company boasts that its smoke-free products, especially its heated tobacco ranges, have helped more than 13 million adult smokers worldwide quit smoking.

The company’s dividend deserves a close look, as it offers investors a reliable payout with a long-term history of steady growth. PM first started paying a dividend in 2008 when it went public. since then, the company hasn’t missed a quarterly payment – ​​and has been increasing the dividend every year, at a CAGR of 7.5%. The current quarterly dividend payment is $1.27 per share, up 2 cents from the previous quarter. The dividend is $5.08 per common share on an annualized basis and yields a strong 5.3%. The new dividend is scheduled to be paid on September 27.

The dividend payout is supported and fully covered by PM’s regular quarterly earnings, which in 2Q12 were $1.32 per diluted share. Philip Morris is targeting full-year diluted EPS in the range of $5.73 to $5.88, which is good news for dividend investors, as hitting that target will keep the dividend easily affordable for the company.

Analyst Pamela Kaufman, who covers this tobacco business for Morgan Stanley, takes into account the company’s growing sales of tobacco-free products, as well as its generally healthy financial position, in recommending the stock.

“Q2 results reflect many of our thesis fundamentals, including IQOS’ attractive momentum with accelerating new IQOS user growth, solid fuel fundamentals with positive international cigarette market share/volumes and increased underlying guidance,” Kaufman said.

Looking ahead, Kaufman rates PM Overweight (i.e. Buy) and sets a price target of $112 for ~16% upside potential. (To follow Kaufman’s background, Click here)

Overall, Philip Morris shares have a Moderate Buy consensus from the Street, based on 7 reviews that include 4 Buys and 3 Holds. (See PM Stock Prediction on TipRanks)

Citizens Financial Group, Inc. (CFG)

Next is Citizens Financial Group, a retail banking company in the US markets. Citizens Financial is headquartered in Rhode Island and operates through 1,200 branches in 14 states, centered in New England but spanning the Mid-Atlantic and Midwest regions. Retail and commercial customers can access a full range of services, including checking and deposit accounts, personal and small business loans, wealth management and even foreign exchange. For customers who cannot reach a branch, CFG offers mobile and online banking and more than 3,300 ATM machines.

Citizens Financial saw revenue exceed $2.1 billion in 2Q12, a 23.5% year-over-year jump. Earnings were below expectations. at $364 million, net income fell 43% year over year and EPS, at 67 cents, was less than half the $1.44 reported last quarter.

Despite the decline in earnings and share value, Citizens Financial felt confident enough to expand its capital return program. The Board of Directors approved, in July, share repurchases of up to $1 billion and an increase of $250 million from the previous authorization.

At the same time, the company is also announcing an 8% increase in its quarterly common stock dividend payment. The new payout, of 42 cents per share, expired in August. per annum at $1.68 and yields 4.5%. Citizens Financial has a history of reliable dividend payments and regular increases since 2014. The dividend has been increased twice in the last three years.

That stock has caught the eye of Morgan Stanley’s Betsy Graseck, who makes a bullish buy case for CFG.

“We are Overweight Citizens due to its earnings growth relative to peers driven by several broad-based factors, including diversified loan classes driving better-than-peer loan growth, disciplined expense management and EPS upside from acquisitions-based supplies,” Graseck wrote.

Graseck’s Overweight (i.e. Buy) rating comes with a $51 price target. If her thesis holds, a trailing twelve month gain of ~37% could potentially be on the cards. (To follow Graseck’s history, Click here)

Financially sound banking companies are sure to gain Wall Street’s interest, and CFG stock has 13 recent analyst ratings on file, including 10 for Buy and 3 for Hold, giving the stock a strong Buy consensus. The average price target of $46.85 implies a ~28% one-year gain from the trading price of $36.76. (See CFG stock forecast on TipRanks)

AvalonBay (AVB)

The third Morgan Stanley pick we’re looking at is AvalonBay, a real estate investment trust (REIT) focused on apartment properties. REITs have a strong reputation for paying consistent dividends. they are required by tax codes to return a certain percentage of profits directly to shareholders and often use dividends to comply with regulatory requirements. AvalonBay owns, acquires, develops and manages multifamily developments in the New York/New Jersey metropolitan area, New England and Mid-Atlantic regions, Pacific Northwest and California. The company targets properties in prime urban centers of its operating areas.

Rising rents were a large component of the overall increase in the rate of inflation, and this was reflected in AvalonBay’s top line. The company’s second-quarter revenue of $650 million was the highest in two years. On earnings, a more “noisy” metric, AvalonBay reported $138.7 million in net income attributable to shareholders. Diluted EPS came in at 99 cents per share, up from $3.21 in the prior quarter.

While earnings per share fell, the company reported an annual gain in a key metric, funds from operations (FFO) attributable to common shareholders. On a diluted basis, FFO increased 22% year-over-year, from $1.97 to $2.41. This should be noted by dividend investors, as FFO is typically used by REITs to cover the dividend.

AvalonBay’s dividend was last paid in July, at $1.59 per common share. The next payment, for October, has already been declared with the same interest rate. The quarterly payout of $1.59 is annualized to $6.36 per common share and yields 3.3%. AvalonBay has paid a quarterly dividend every quarter – without missing a beat – since it went public in 1994, and over the past 28 years has averaged a 5% annual increase in payout.

Morgan Stanley analyst Adam Cramer sees a path forward for this company and explains why investors should get in now: “We think AVB can trade at a premium to [peers] in our coverage given our leading SS-Revenue and strong FFO per share growth and a diversified growth agenda. We believe investors have a ‘free option’ on the growth pipeline as the current share price implies a multiple of ~19.7x on ’23e FFO ex’. external development”.

Kramer uses these comments to support his Overweight (i.e. Buy) rating on the stock, and his price target, set at $242, suggests AVB has 26% upside potential ahead. (To follow Kramer’s history, Click here)

Overall, AVB shares are rated 8 Buy and 11 Hold, making the consensus analyst rating here a Moderate Buy. The stock is the most expensive on this list at $190.87 per share and the average price target of $226.17 is indicative of ~18% upside potential over the coming months. (See AVB stock forecast on TipRanks)

To find good ideas for trading dividend stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.

Denial of responsibility: The views expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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