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Stocks with a consistent track record of dividend growth could be better choices than their high-yielding peers, according to Morgan Stanley.
Equities that have consecutively increased their dividend for 25 years have outperformed the S&P 500 consistently for years, analysts at Morgan Stanley wrote in a Wednesday note.
Dividend-paying equities have also outperformed their non-dividend-paying peers across all large-cap sectors since 2000, except the consumer discretionary sector, according to the analysts. Dividend growers’ outperformance is less significant within small-cap stocks.
Compustat, Morgan Stanley Research
Though high-yielding stocks might be attractive in the short term, they tend to be more volatile in the medium to long term, and offer mean-reverting return, according to the analysts.
Meanwhile, the current macroeconomic environment, which features elevated but easing inflation, is usually supportive of the outperformance of dividend-paying stocks, the analysts noted. Morgan Stanley thinks that inflation will continue to fall from high levels over the coming months, according to the note.
The Morgan Stanley analysts have also highlighted several stocks that would look attractive in three to five years from a dividend perspective, as shown in the table below.
Bloomberg, Morgan Stanley Research Estimates
U.S. stocks closed mostly higher Wednesday, with the S&P 500
SPX
up less than 0.1% and the Nasdaq Composite
COMP
up 0.2%. The Dow Jones Industrial Average
DJIA
dipped 0.2%.
