Get 15% Dividend Growth From Wall Street
Investment banks are some of the most important companies in the stock market.
They help companies expand by issuing debt or stock to generate cash, as well as by identifying and researching possible acquisition targets.
Investment banks also publish and sell research about various stocks, which is really helpful for all kinds of investors figuring out what to buy or sell.
For dividend investors, investment banks can provide something else… dividends!
Morgan Stanley (ticker: MS) is one of the top names in the financial markets.
The company has been around since 1935, when it was forced to spin off from J.P. Morgan (ticker: JPM).
Interestingly, one of Morgan Stanley’s cofounders was J.P. Morgan’s grandson.
So, the “Morgan” in both company names comes from the same family.
Morgan Stanley is one of the largest investment banks in the world with almost $80 billion in revenue last year.
Its growth has also been incredible!
Over the last decade, Morgan Stanley has averaged 12% growth each year in earnings.
And the earnings growth has been passed down to investors through dividends.
Over the past decade, Morgan Stanley raised its dividend by almost 20% each year!
Morgan Stanley started dividend payments in 1986, but I’m going to show its history back to 2006 because it’s important.
I want to highlight two parts of the chart.
The first is obvious and it’s the huge dividend cut in 2008.
The reason was very simple… the financial markets were crashing from the housing market collapse and banking crisis.
Unfortunately, Morgan Stanley, like every other investment bank, was caught in the middle of it.
Morgan Stanley cut its dividend by over 90% to stay afloat.
Now, I don’t blame Morgan Stanley for the dividend cut.
But it’s important to know if any of your stocks have a history of dividend cuts, even if they’re warranted.
We’ll get back to the dividend cut in a minute.
The second part of the chart is the large dividend hike in 2021.
Morgan Stanley doubled its dividend payment in just one year.
Why is the dividend doubling important?
Much of the 20% average annual growth comes directly from the dividend doubling in 2021.
So, while a 20% dividend growth rate will certainly make headlines, we shouldn’t expect it going forward.
What should we expect?
Well, Morgan Stanley just raised its dividend again.
Its next payment is $1.15, which is 15% higher than the last payment.
Not as good as 20%, but I won’t complain about a 15% dividend growth rate.
The higher payment is just around the corner… you must own Morgan Stanley by July 30 (Thursday) to get the money.
Currently, Morgan Stanley’s dividend yield is around 2.2%, which doesn’t seem like much.
But if Morgan Stanley can maintain a 15% dividend growth rate, its dividend would double in less than 5 years!
Morgan Stanley is showing no signs of slowing down.
Over the past year, Morgan Stanley’s dividend payout ratio is only 32%.
And the investment bank is incredibly profitable.
Last quarter’s profit margin was over 28%, which is higher than its peers’ margins and near an all-time high for Morgan Stanley.
Now, the dividend cut in 2008 looks scary, but Morgan Stanley has changed a lot since then.
In particular, Morgan Stanley has grown its wealth management business by acquiring E*TRADE and Eaton Vance in 2020 and 2021, respectively.
Wealth management is a much more stable business than traditional investment banking.
And Morgan Stanley’s percentage of revenue from wealth management has almost doubled from 26% in 2008 to 45% today.
If another financial crash happens, it will certainly hurt Morgan Stanley.
But it will be better insulated because of the stable fees it receives from wealth management.
So, if you’re looking for a great company with some incredible dividend growth, then give Morgan Stanley a look.
Do you own any companies with rapid growth like Morgan Stanley’s?
Send me a note if you do!
Michael Jennings
This post originally appeared at Dividend Stocks Research.
Category: Dividend Stocks
