It looks like Morgan Stanley (NYSE:MS) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 29th of April will not receive the dividend, which will be paid on the 15th of May.
Morgan Stanley's upcoming dividend is US$0.35 a share, following on from the last 12 months, when the company distributed a total of US$1.40 per share to shareholders. Last year's total dividend payments show that Morgan Stanley has a trailing yield of 3.7% on the current share price of $37.47. If you buy this business for its dividend, you should have an idea of whether Morgan Stanley's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Morgan Stanley's payout ratio is modest, at just 29% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Morgan Stanley's earnings have been skyrocketing, up 24% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Morgan Stanley has delivered an average of 21% per year annual increase in its dividend, based on the past ten years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is Morgan Stanley an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Morgan Stanley appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
On that note, you'll want to research what risks Morgan Stanley is facing. For example, Morgan Stanley has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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