We recently compiled a list of the 10 Best Bank Stocks with High Dividends. In this article, we are going to take a look at where Morgan Stanley (NYSE:MS) stands against the other bank stocks with high dividends.
Bank stocks are having a moment. The S&P Banks Select Industry Index, which tracks the performance of companies belonging to different banking subsectors, surged by almost 17% in July, while the tech-focused Nasdaq fell by 1.6%. This shift is contributing to the broader market rally that has been ongoing for the past year or so. Share prices of major banks have reached all-time highs, allowing the finance sector to sometimes surpass the tech sector in driving the broader market higher on certain days. This spike in bank stocks came as a surprise to investors and analysts, considering that financial stocks have lagged behind the rest of the market for years. Just a year ago, the banking sector was in turmoil due to the collapse of Silicon Valley Bank, First Republic, and other major institutions. But as they say, the market moves in mysterious ways.
The current strength of banking stocks suggests that their recent surge is likely to be sustained rather than short-lived. Recently, the Federal Reserve Board conducted its annual stress test, a tool designed to verify that major banks can support the economy during economic downturns. The results indicated that, although large banks might face larger losses compared to last year’s test, they are well-prepared to withstand a severe recession and remain above the required capital thresholds. In addition, analysts are also presenting a positive outlook on the sector. One key reason for this bullish outlook is that recent earnings reports suggest banks are nearing the end of a slowdown in net interest income. Moreover, good news about inflation has led investors to shift their focus from tech stocks to companies, like banks, that could benefit from Federal Reserve rate cuts. Some of the largest banks, such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. have both reached all-time highs this year so far.
The enthusiasm for the sector is backed by evidence, as recent earnings reports from several banks reveal positive results for the second quarter of 2024. Morgan Stanley analyst Betsy Graseck believes that the shift in net interest income from a “headwind to a tailwind” will be a major factor driving positive operating leverage in the latter half of the year and into 2025.
Another reason for this strong outlook, according to Dave Donabedian, the Chief Investment Officer of CIBC’s private wealth division, is that “sticky money” is entering the sector for the first time in a long while. He attributed this trend to investors seeking diversification away from tech stocks and the attractive dividends offered by many bank stocks. The dividend factor is indeed accurate. Banking stocks have continued to offer generous dividends to shareholders. In fact, in 2023, the banking sector set records for dividend payouts and was responsible for half of the global dividend growth, thanks to the higher interest rates that allowed many banks to boost their profit margins. In this article, we will take a look at some of the best dividend stocks from the banking sector.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 920 hedge funds as of Q1 2024 and identified bank stocks that pay dividends. From that list, we picked 10 stocks that have dividend yields above 2%, as of August 4. The stocks are ranked in ascending order of hedge funds’ sentiment towards them. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A panoramic view of a financial institution, representing the number of corporations who trust the company’s services.
Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 59
Dividend Yield as of August 4: 3.86%
Morgan Stanley (NYSE:MS) is an American multinational investment banking company that offers a wide range of financial services to its consumers. The stock has risen more than 27%, increasing from approximately $70 per share in early January 2021 to about $96 per share currently. Despite this recent gain, its overall performance has been quite variable over the past three years. A significant factor contributing to this volatility is the company’s difficulties with its Wealth Management division, which has led to its shares experiencing their largest decline in over three years. Since the start of 2024, the stock just managed to return a little over 2%, compared with a 12.7% return for the broader market.
The Wealth Management segment hasn’t always been slow. In fact, it thrived under James Gorman, its former CEO, bringing in steady revenue through fees during market fluctuations. Gorman aimed to manage $10 trillion in client assets, with the division holding $7.2 trillion as of the second quarter of 2024. Despite a slowdown in net asset inflows, Morgan Stanley (NYSE:MS)’s executives reported that the wealth unit is growing within the bank’s anticipated range of 5% to 7% per year. Although the bank is not looking at acquisitions in the immediate future, it might explore opportunities in the next two to four years. Its Wealth Management segment brought in roughly $6.8 billion in revenues, growing from $6.6 billion in the same period last year. The company generated over $15 billion in revenues in Q2 2024, up from $13.4 billion in the prior year period.
Recently, Morgan Stanley (NYSE:MS) hiked its quarterly dividend by 8.8% after passing the Fed’s stress test. The company would now offer a quarterly dividend of $0.925 per share for a dividend yield of 3.86%, as of August 4. The company has not only maintained regular dividend payments to shareholders but has also significantly increased its payouts over time. In the past five years, it has raised its payouts at an annual average rate of 22.6%, which makes MS one of the best dividend stocks in the banking sector. In the second quarter of 2024, the bank returned $134 million to shareholders through dividends.
As of the end of Q2 2024, 59 hedge funds in Insider Monkey’s database held investments in Morgan Stanley (NYSE:MS), up from 56 in the previous quarter. These stakes have a total value of over $3 billion. With over 20.7 million shares, Fisher Asset Management was the company’s leading stakeholder in Q1.
Overall MS ranks 7th on our list of the best bank stocks to buy. You can visit 10 Best Bank Stocks with High Dividends to see the other bank stocks that are on hedge funds’ radar. While we acknowledge the potential of MS as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than MS but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
