Morgan Stanley: Buy these 26 top dividend stocks to earn income and outperform during a market pullback – including one with 85% upside
- The stock market has taken a turn for the worse in the last few months as stocks sell off.
- Investors hoping to preserve profits should turn to dividend-paying stocks, says Morgan Stanley.
- These 26 stocks provide solid dividends and could see shares rise up to 85% in the months to come.
As the stock market continues to suffer from volatility, investors are forced to sit back and watch their gains erode.
Between January and July 2023, the S&P 500 rose 19.5%, only to fall 6% in the months since. And, with the Fed’s higher-for-longer stance on interest rates, bearish sentiment among investors, and a seasonal decline taking hold, it appears that this summer’s rally may continue to fade as fall approaches.
However, dividend stocks are one way for equity investors to stop the bleeding.
According to a recent analysis by Morgan Stanley chief investment officer Mike Wilson, dividend-paying stocks outperform non-dividend stocks over time and can also withstand the punishment of a market downturn.
Dividend stocks are unaffected by high inflation.
High inflation is bad news for many stocks, particularly high-growth stocks that rely on easy monetary policy to fuel their expansions. High inflation, on the other hand, is no problem for dividend stocks, especially if it continues to fall as it has for several months.
“Our economists are of the view that inflation will continue to slow from elevated levels over the next 12 months,” he wrote. “That backdrop is supportive of owning dividend-related factors and defensive dividend payers, in particular.”
Of course, inflation isn’t the only concern for investors. A market pullback caused by recession fears is currently eroding their returns, but dividend stocks may weather the storm better than most.
“Dividends provide a positive return cushion with a notable portion of outperformance for payers versus non- payers coming during periods of market volatility,” Wilson wrote in a note. He went on to say, “Specifically, the majority of outperformance comes during large market pullbacks such as 2000, 2008, 2015, and 2020.”
Wilson believes that the security of guaranteed dividend payments incentivizes investors to buy dividend stocks when the rest of their portfolios are suffering. He also believes that by paying a dividend, these companies benefit from longer-term share price appreciation, are better positioned to weather downturns, and experience less volatility when the market moves.
And it’s not just Dividend Aristocrats, the elite group of stocks that have raised dividends every year for the past 25 years, that have outperformed the market. Even new dividend payers begin to outperform fairly quickly.
“Our analysis in Exhibit 6 shows that stocks that recently initiated a dividend don’t necessarily outperform over the first 1-2 years but do in fact see outperformance over the medium to long-term (3-10 years),” Wilson said in a statement. “This outperformance is consistent at the index, sector and industry group level.”
The top 26 dividend stocks for high returns
As the market downturn this month takes its toll on your portfolio, it may be time to turn to dividend stocks to boost your profits. While dividend payouts are nice, finding stocks that may see their share prices rise in the coming months could add some extra oomph to your returns.
Wilson polled Morgan Stanley analysts for over-rated dividend-paying stocks to that end. He then filtered the results by total expected return, which combines price target upside and dividend yield, to find the best dividend picks to own right now.
These 26 stocks are listed below, along with their ticker, industry, previous closing price, Morgan Stanley’s price target, projected dividend yield for 2024, and total expected return.
1. Royalty Pharma Plc
Ticker: RPRX
Industry: Major Pharmaceuticals
Previous Closing Price: $26.78
Price Target: $53
Dividend yield (%) Mse ’24: 2.9% e
Total Expected Return: 85%
Source: Morgan Stanley
2. AES Corp.
Ticker: AES
Industry: Diversified Utilities / IPPs
Previous Closing Price: $14.89
Price Target: $29
Dividend yield (%) Mse ’24: 4.1% e
Total Expected Return: 74%
Source: Morgan Stanley
3. Crown Castle Corp.
Ticker: CCI
Industry: Communications Infrastructure
Previous Closing Price: $92.10
Price Target: $151
Dividend yield (%) Mse ’24: 6.6% e
Total Expected Return: 61%
Source: Morgan Stanley
4. L3Harris Technologies Inc
Ticker: LHX
Industry: Defense
Previous Closing Price: $172.34
Price Target: $264
Dividend yield (%) Mse ’24: 3.0% e
Total Expected Return: 59%
Source: Morgan Stanley
5. Cinemark Holdings, Inc.
Ticker: CNK
Industry: Media & Entertainment
Previous Closing Price: $18.19
Price Target: $24
Dividend yield (%) Mse ’24: 9.6% e
Total Expected Return: 56%
Source: Morgan Stanley
6. Bridge Investment Group
Ticker: BRDG
Industry: Brokers, Asset Managers & Exchanges
Previous Closing Price: $9.23
Price Target: $15
Dividend yield (%) Mse ’24: 8.6% e
Total Expected Return: 56%
Source: Morgan Stanley
7. Equitrans Midstream Corp
Ticker: ETRN
Industry: Midstream & Renewable Energy Infrastructure
Previous Closing Price: $9.56
Price Target: $14
Dividend yield (%) Mse ’24: 8.8% e
Total Expected Return: 54%
Source: Morgan Stanley
8. Harley-Davidson
Ticker: HOG
Industry: Autos & Shared Mobility
Previous Closing Price: $32.94
Price Target: $50
Dividend yield (%) Mse ’24: 3.0% e
Total Expected Return: 52%
Source: Morgan Stanley
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9. FMC Corporation
Ticker: FMC
Industry: Chemicals
Previous Closing Price: $65.90
Price Target: $100
Dividend yield (%) Mse ’24: 3.4% e
Total Expected Return: 50%
Source: Morgan Stanley
10. Eastman Chemical Co
Ticker: EMN
Industry: Chemicals
Previous Closing Price: $76.89
Price Target: $115
Dividend yield (%) Mse ’24: 4.2% e
Total Expected Return: 49%
Source: Morgan Stanley
11. Regions Financial Corp
Ticker: RF
Industry: Large Cap Banks
Previous Closing Price: $17.05
Price Target: $26
Dividend yield (%) Mse ’24: 5.5% e
Total Expected Return: 48%
Source: Morgan Stanley
12. Equitable Holdings Inc
Ticker: EQH
Industry: Insurance – Life/Annuity
Previous Closing Price: $28.10
Price Target: $40
Dividend yield (%) Mse ’24: 7.1% e
Total Expected Return: 46%
Source: Morgan Stanley
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13. Western Midstream Partners LP
Ticker: WES
Industry: Midstream & Renewable Energy Infrastructure
Previous Closing Price: $27.27
Price Target: $35
Dividend yield (%) Mse ’24: 9.1% e
Total Expected Return: 43%
Source: Morgan Stanley
14. Realty Income Corp
Ticker: O
Industry: Real Estate Investment Trusts
Previous Closing Price: $49.63
Price Target: $74
Dividend yield (%) Mse ’24: 5.7% e
Total Expected Return: 40%
Source: Morgan Stanley
15. Verizon Communications
Ticker: VZ
Industry: Telecom Services
Previous Closing Price: $32.55
Price Target: $44
Dividend yield (%) Mse ’24: 7.9% e
Total Expected Return: 37%
Source: Morgan Stanley
16. Canadian National Railway Co.
Ticker: CNI
Industry: Freight Transportation
Previous Closing Price: $109.62
Price Target: $199
Dividend yield (%) Mse ’24: 2.0% e
Total Expected Return: 36%
Source: Morgan Stanley
17. Targa Resources Corp.
Ticker: TRGP
Industry: Midstream & Renewable Energy Infrastructure
Previous Closing Price: $87.42
Price Target: $114
Dividend yield (%) Mse ’24: 2.2% e
Total Expected Return: 36%
Source: Morgan Stanley
18. NextEra Energy Inc
Ticker: NEE
Industry: Diversified Utilities / IPPs
Previous Closing Price: $57.09
Price Target: $90
Dividend yield (%) Mse ’24: 3.0% e
Total Expected Return: 36%
Source: Morgan Stanley
19. Energy Transfer LP
Ticker: ET
Industry: Midstream & Renewable Energy Infrastructure
Previous Closing Price: $14.02
Price Target: $17
Dividend yield (%) Mse ’24: 9.7% e
Total Expected Return: 34%
Source: Morgan Stanley
20. Medtronic PLC
Ticker: MDT
Industry: Medical Technology
Previous Closing Price: $78.69
Price Target: $104
Dividend yield (%) Mse ’24: 3.6% e
Total Expected Return: 32%
Source: Morgan Stanley
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21. Cigna Corp
Ticker: CI
Industry: Healthcare Facilities & Managed Care
Previous Closing Price: $290.30
Price Target: $365
Dividend yield (%) Mse ’24: 3.6% e
Total Expected Return: 31%
Source: Morgan Stanley
22. Philip Morris International Inc
Ticker: PM
Industry: Tobacco
Previous Closing Price: $93.07
Price Target: $118
Dividend yield (%) Mse ’24: 5.7% e
Total Expected Return: 31%
Source: Morgan Stanley
23. Johnson Controls International Plc
Ticker: JCI
Industry: Multi-Industry
Previous Closing Price: $53.18
Price Target: $73
Dividend yield (%) Mse ’24: 3.1% e
Total Expected Return: 30%
Source: Morgan Stanley
24. American Electric Power Co
Ticker: AEP
Industry: Diversified Utilities / IPPs
Previous Closing Price: $74.67
Price Target: $95
Dividend yield (%) Mse ’24: 4.6% e
Total Expected Return: 27%
Source: Morgan Stanley
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25. FirstEnergy Corp
Ticker: FE
Industry: Regulated Utilities
Previous Closing Price: $34.60
Price Target: $43
Dividend yield (%) Mse ’24: 4.7% e
Total Expected Return: 25%
Source: Morgan Stanley
26. McDonald’s
Ticker: MCD
Industry: Restaurants
Previous Closing Price: $265.59
Price Target: $330
Dividend yield (%) Mse ’24: 2.4% e
Total Expected Return: 20%
Source: Morgan Stanley
