Companies Consistently Growing Their Dividend YoY are a ‘Sweet Spot’

By Senad Karaahmetovic

While investors usually focus on finding stocks that offer high dividend yields, Morgan Stanley strategists urge them to add another component to their research process: consistency.

“We believe the ‘dividend sweet spot’ is not to find the highest yielding stock but to find consistent companies who can grow their dividend year-over year and have a proven track record. It’s this underlying stability combined with the dividend return that can provide a defensive cushion during market turbulence – similar to today’s environment,” strategists wrote in a client note.

As far as high yields are concerned, sectors like Banks, Energy, and Food, Beverage, & Tobacco often grab investors’ attention. This is especially important as dividend stocks tend to perform well in a late-cycle environment.

“When inflation is above trend and falling (today’s environment), this is one of the best performing regimes for high dividend stocks,” an MS strategist added.

Strategists also note that high dividend yield has outperformed sharply in 2021 and 2022, mostly due to the outperformance of the Energy sector.

Top dividend picks at Morgan Stanley include Nextera Energy (NYSE:), AT&T (NYSE:), PepsiCo (NASDAQ:), and Coca-Cola (NYSE:).