Morgan Stanley's quant screen chooses dividend stocks to own and avoid

Sep. 19, 2022 6:25 AM ETAEO, ED, FE, PEG, SO, AES, EBAY, MSFT, CMCSA, T, MA, NKE, PAG, UPS, YUM, CAT, ROST, LUMN, KSS, MCHP, TJX, FDS, GPI, WFC, BF.B, SAH, CCK, EMN, APD, RF, LAZ, LAD, WSO, PAA, V, PM, WES, PRIM, LYB, LIN, FANG, ABBV, ZTS, CDW, CFG, UE, RACE, VST, INVH, ET, RTX, RPRXBy: Kim Khan, SA News Editor145 Comments

Digitally enhanced shot of a graph showing the ups and downs shares on the stock market

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Morgan Stanley ran a quantitative screen based on analyst research to identify best risk and reward among dividend-paying stocks.

"This methodology compares upside/downside to price target, projected dividend yields, and bull-bear spread, and 1-year volatility to optimize risk and return metrics," Nicholas Lentini and team wrote in a note. "We then ran the final 'To Own' and 'To Avoid' stocks by our coverage analysts as a fundamental overlay."

The lists "represent the top and bottom two deciles of total return (PT upside + dividend yield) stocks as ranked by our model," he said.

The systematic top dividend stocks to own are:

  • Eastman Chemical (EMN), dividend yield 3%, total expected return 77%
  • LyondellBasell (LYB), 9%, 41%
  • Linde (LIN), 2%, 29%
  • Air Products and Chemicals (APD), 3%, 30%
  • Public Service Enterprise (PEG), 3%, 25%
  • FirstEnergy (FE), 4%, 36%
  • Vistra (VST), 3%, 35%
  • AES (AES), 3%, 27%
  • Crown Holdings (CCK), 1%, 42%
  • Visa (V), 1%, 44%
  • MasterCard (MA), 1%, 38%
  • AT&T (T), 6%, 29%
  • AbbVie (ABBV), 4%, 42%
  • Royalty Pharma (RPRX), 2%, 20%
  • Yum! Brands (YUM), 2%, 29%
  • Wells Fargo (WFC), 3%, 44%
  • Citizens Financial Group (CFG), 5%, 41%
  • Regions Financial (RF), 4%, 31%
  • Ross Stores (ROST), 1%, 37%
  • TJX (TJX), 2%, 24%
  • Ferrari (RACE), 1%, 51%
  • Energy Transfer (ET), 11%, 34%
  • Western Midstream (WES), 8%, 31%
  • Plains All American (PAA), 8%, 30%
  • Philip Morris (PM), 5%, 21%
  • Invitation Homes (INVH), 2%, 23%
  • Raytheon (RTX), 2%, 35%
  • Diamondback Energy (FANG), 9%, 36%
  • Microchip Technology (MCHP), 3%, 27%
  • Primoris Services (PRIM), 1%, 55%
  • Nike (NKE), 1%, 39%
  • Comcast (CMCSA), 3%, 39%
  • Microsoft (MSFT), 1%, 33%
  • CDW (CDW), 1%, 28%
  • Zoetis (ZTS), 1%, 66%

The stocks to avoid are:

  • Consolidated Edison (ED), 3%, -11%
  • Southern (SO), 4%, -8%
  • Caterpillar (CAT), 3%, -23%
  • Lumen Technologies (LUMN), 2%, -9%
  • Lazard (LAZ), 5%, -13%
  • American Eagle (AEO), 4%, -28%
  • Kohl's (KSS), 5%, -30%
  • Urban Edge (UE), 4%, -9%
  • Lithia Motors (LAD), 1%, -20%
  • Penske Automotive (PAG), 2%, -22%
  • Group 1 Automotive (GPI), 1%, -23%
  • Sonic Automotive (SAH), 2%, -40%
  • FactSet (FDS), 1%, -23%
  • Brown-Forman (BF.B), 1%, -12%
  • Watsco (WSO), 3%, -26%
  • eBay (EBAY), 2%, -15%
  • UPS (UPS), 3%, -23%

See the Credit Suisse "Top of the Crop" list.

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