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Morgan Stanley Research published a report last week about how they think investors should be handling their own US equity strategy. “Our view is that the right strategy to outperform currently is to focus on companies with sustainable dividends” the report says. “With the 10-year Treasury offering just around 2% yield, equities that can grow EPS over the next decade and offer higher dividends are likely to be prudent investments,” Morgan Stanley argues. We actually agree with them. We expect high dividend stocks to outperform Treasuries over the next 10 years.

Below are a list of high dividend stocks with sustainable yields recommended by Morgan Stanley with dividend yields between 2.5% and 6% as of October 24, 2011.

Wal-Mart Stores Inc (NYSE:WMT): Wal-Mart operates retail stores. WMT has a market cap of $196.3B and pays $1.46 dividend per share. The stock has a dividend yield of 2.6% and a payout ratio of 33.5%. Warren Buffett invested over $2 billion in this stock.

Procter & Gamble Co (NYSE:PG): Procter & Gamble is focused on providing consumer packaged goods. It has a market cap of $178.4B and pays $2.10 dividend per share. The stock has a dividend yield of 3.3% and a payout ratio of 59.7%. Warren Buffett is also bullish about PG. He had $4.85 billion invested in the stock. Ken Fisher also had $266 million invested in PG.

Intel Corp (NASDAQ:INTC): Intel Corporation is a semiconductor chip maker company. It has a market cap of $130.2B and pays $0.84 dividend per share. The stock has a dividend yield of 3.4% and a payout ratio of 31.3%. Ken Fisher also invested over $400 million in INTC.

McDonald’s Corp (NYSE:MCD): McDonald’s Corporation franchises and operates McDonald’s restaurants in the global restaurant industry. It has a market cap of $94.7B and pays $2.44 dividend per share. The stock has a dividend yield of 2.7% and a payout ratio of 42.1%. Jim Simons had $270 million invested MCD.

ConocoPhillips (NYSE:COP): ConocoPhillips is an international, integrated energy company. It has a market cap of $97.0B and pays $2.64 dividend per share. The stock has a dividend yield of 3.7% and a payout ratio of 27.2%. Buffett also had $1.84 billion invested in COP.

United Technologies Corp (NYSE:UTX): United Technologies Corporation is a provider of technology products and services to the building systems and aerospace industries worldwide. It has a market cap of $68.2B and pays $1.92 dividend per share. The stock has a dividend yield of 2.5% and a payout ratio of 32.2%. John H. Scully’s SPO Advisory Corp held the largest position in UTX. The fund invested $442 million in this stock.

United Parcel Services Inc (NYSE:UPS): United Parcel Service is a package delivery company. It has a market cap of $68.0B and pays $2.08 dividend per share. The stock has a dividend yield of 3.0% and a payout ratio of 48.6%. Jason Capello owned $221 million in UPS at the end of September.

Home Depot Inc (NYSE:HD): The Home Depot is a home improvement retailer. It sells an assortment of building materials, home improvement and lawn and garden products. HD has a market cap of $56.5B and pays $1.00 dividend per share. The stock has a dividend yield of 2.8% and a payout ratio of 28.7%. Jean-Marie Eveillard was bullish about HD. His First Eagle Investment Management invested more than $300 million in this stock at the end of the third quarter.

Medtronic Inc (NYSE:MDT): Medtronic is engaged in research, design, manufacture and sale of products to alleviate pain, restore health and extend life. MDT has a market cap of $35.8B and pays $0.97 dividend per share. The stock has a dividend yield of 2.9% and a payout ratio of 31.5%. Ken Fisher was also bullish about this stock. His Fisher Asset Management had nearly $300 million invested in MDT shares.

Time Warner Inc (NYSE:TWX): Time Warner is a media and entertainment company. It has a market cap of $35.8B and pays $0.94 dividend per share. The stock has a dividend yield of 2.7% and a payout ratio of 39.2%. Ken Fisher owned $273 million worth of TWX stocks at the end of September.

Source: 10 Dividend Stocks Morgan Stanley Recommends