Companies that begin paying dividends tend to earn above-market returns, with outperformance of 6.5% and 9.2% within six months and one year of the announcement, respectively.
The club of dividend stocks could soon welcome new members, Morgan Stanley says.
Adopting a regular dividend policy not only sends a positive signal to the financial markets but also reflects management’s confidence in the company and attracts income-oriented investors. That’s what analyst Todd Castagno said, noting that a dividend "communicates a promising future," while offering stable income and attracting passive, income-oriented investors.
Among the high-profile names that have recently initiated a dividend policy are Alphabet and Meta Platforms. The online search giant announced a quarterly dividend of 20 cents per share in April, while Meta Platforms authorized a dividend of 50 cents per share in February. These moves bring the total number of stocks in the so-called "Magnificent Seven" offering a dividend to five, joining Nvidia, Microsoft, and Apple.
Castagno highlighted that companies that start paying dividends tend to achieve above-market returns, with outperformance of 6.5% and 9.2% within six months and a year respectively of the announcement. Analyzing by sector, stocks in the consumer staples, energy, and communication services sectors tend to have higher returns, while the materials sector is the only one to underperform after initiating a policy of dividends.
To identify potential candidates for initiating a dividend policy, Morgan Stanley looked for stocks with a market capitalization above $35 billion, a strong net cash position, and a free cash flow yield above 3%. Companies that passed these criteria include PayPal, Regeneron, Airbnb, Palo Alto Networks, Lululemon Athletica, Expedia Group, and Instacart.
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Among these, several technology companies, such as PayPal and Palo Alto Networks, stand out. Shares of these companies have risen 5% and 0.3% respectively this year. Expedia Group stands out with the most significant return of the group, with 12.6%. However, its shares are down 26% this year and about 16% in May, due to a downward revision to its full-year forecast following a contraction in Vrbo’s business and revenue growth rate. growth of business-to-consumer customers.
Instacart, the recently listed grocery delivery company, also earned a spot on the list of potential candidates. Instacart shares have risen nearly 58% this year and are about 14% below its IPO opening price of $42. The company represented one of the first significant IPOs last year after about two years of a dearth of technology offerings.
The initiative to initiate a dividend policy can be seen as a positive signal of confidence in the company and may attract income-oriented investors, while the search for potential candidates for such an initiative reflects the growing attention towards stocks that they offer stable returns and solid financial management.
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Original article published on Money.it Italy 2024-06-16 07:28:00. Original title: Le 7 azioni con dividendi selezionate da Morgan Stanley
