Morgan Stanley Delivers 20% Capital Gains in 2019, Offers 2.5% Dividend Yield (MS)

After its share price declined more than 35% in the last three quarters of 2018, Morgan Stanley (NYSE:MS) delivered a 20% asset appreciation since the beginning of 2019 and has already recovered more than half of its 2018 losses.

Morgan Stanley share price lost nearly 90% of its value in the aftermath of the 2008 financial crisis. However, despite some volatility and three pullbacks, the company’s share price rose nearly five fold since its after-crisis low. In 2018, the share price experienced another pullback. However, the share price has jumped on another uptrend since the beginning of 2019 and, supported by a positive financial results report on April 17, 2019, could continue its current uptrend deeper into 2019.

Financial Results

After missing analysts’ earnings estimates for the fourth-quarter 2018, Morgan Stanley beat expectation with its first-quarter 2019 results. While 7% lower than in the same period last year, the $10.3 billion net revenues beat analysts’ expectations. To compensate for lower revenues, the company managed to reduce its compensation (-5.4%) and non-compensation (-2.3%) expenses. Earnings of $2.4 billion were equivalent to $1.39 per diluted share. Adjusted earnings of $1.33 beat analysts’ expectations of $1.17 by 13.7%.

During the first quarter, Morgan Stanley returned $1.2 billion to its shareholders by repurchasing approximately 28 million shares. The company returned another $500 million as dividend distributions.

Morgan Stanley (NYSE:MS)

Headquartered in New York, New York, and founded in 1924, Morgan Stanley is a financial holding company that provides various financial products and services to corporations, governments, financial institutions and individuals. The company operates through three business segments — Institutional Securities, Wealth Management and Investment Management. The Institutional Securities segment offers capital raising and financial advisory services, as well as advice on mergers and acquisitions, restructurings, real estate and project finance. This segment also provides sales and trading services, including sales, financing and fixed income products consisting of foreign exchange and commodities. Additionally, this segment offers prime brokerage services, corporate loans, commercial and residential mortgage lending, asset-backed lending, financing for equities and commodities, as well as investment and research services. The Wealth Management segment offers various financial services and solutions covering brokerage, investment advisory, financial and wealth planning services. The Investment Management segment provides various investment products including equity, fixed income, liquidity and defined benefit/defined contribution plans.

Dividends

Morgan Stanley’s upcoming $0.30 quarterly dividend payout is 20% higher than the $0.25 distribution from the same period last year. The annualized dividend amount of $1.20 per share is equivalent to a 2.5% forward dividend yield. This current yield is 31% higher than the company’s 1.9% average yield over the past five years. While trailing the 3.11% average yield of the overall Financials sector, Morgan Stanley outperformed the average yield of its peers in the National Investment Brokerage industry segment by 67%. Also, as the company with the third highest yield in the segment, Morgan Stanley’s current dividend yield is 1.5% higher than the average yield of the segments only dividend paying companies.

After cutting its annual dividend payout amount more than 80% in the aftermath of the 2008 financial crisis, Morgan Stanley paid a flat annual dividend of $0.20 for the subsequent four years. After a paying a flat dividend from 2010 to 2013, the company resumed dividend hikes in 2014.

Since resuming dividend hikes, Morgan Stanley enhanced its total annual payout amount six-fold from $0.20 in 2013 to the current $1.20 payout amount. This level of dividend advancement is equivalent to an average growth rate of almost 35% per year. The company’s current dividend payout ratio is 24%, which indicates that the company is using less than one-quarter of its earnings to cover its dividend distributions. A payout ratio this low implies that the company has enough earnings to support its dividend growth at the current level for the near term.

Furthermore, if Morgan Stanley follows the same schedule as it did in the past three years, investors can expect another dividend hike declaration in July with a mid-August pay date. Investors who wish to take advantage of the increased dividends could act now and add Morgan Stanley shares to their portfolio prior to the upcoming April 25, 2019, ex-dividend date. All shareholders of record before that ex-dividend date will receive the next round of dividend distributions on the May 15, 2019, pay date.

Share Price

Entering the trailing 12-month period on a downtrend that began in March 2018, the shareprice passed through its 52-week high of $55.22 on May 14 and continued its decline for the remainder of the year. The share price reached its 52-week low of $37.01 on December 24, 2018.

However, after bottoming out in late December 2018, the share price reversed direction and has been ascending since then. Advancing with minimal volatility, the share price rose nearly 20% since the beginning of the year to close on April 17, 2019, at $48.26. While still 12.6% short of the peak from May 2018 and 9.4% lower than it was 12 months ago, the April 17, closing price was mora than 30% above its 52-week low from December, as well as nearly 60% higher than it was five years ago.

While unable to overcome the 9.4% share price decline over the past year, dividend distributions offset a portion of that deficit and reduced one-year total losses to just 7%. However, a continued share price uptrend could bring total returns back to the positive side and towards total returns Morgan Stanley delivered over the last few years. The total return over the last five years was more than 70%. Additionally, Morgan Stanley’s shareholders doubled their investment over the past three years.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.