Morgan Stanley opinionized these two high-yield dividend companies are attractively priced and provide potential for development.




In a recent study by Mike Wilson, Chief Investment Officer at Morgan Stanley, the analysis focused on the performance of dividend stocks versus non-dividend stocks since 2000. The historical data underscores a compelling trend: dividend stocks consistently outperform non-dividend stocks over the medium to long term.

This outperformance has been even more pronounced during periods of uncertainty and market declines. “In particular,” says Wilson, “the outperformance is greatest during periods of large market declines such as 2000, 2008, 2015 and 2020.”

Given the uncertainty that currently prevails, Wilson believes that it may be the right time to seriously consider adding to these classic defensive stocks.

Against this backdrop, Morgan Stanley analysts have identified an opportunity in two dividend stocks with enticing attributes: a high dividend yield above the current rate of inflation, an attractive valuation and the potential for future share price growth.

In fact, it’s not just Morgan Stanley that favors these stocks. Using the TipRanks database, we found that both are also rated as “Strong Buys” by the analyst consensus. Let’s take a closer look.


Philip Morris International (PM)…Visit Now

Let’s start with one of the best-known names in the “sin industry”, Philip Morris International. Philip Morris International is a leader in the tobacco industry and owns the production and marketing rights for the international presence of the Marlboro cigarette brand. The company’s other brand names include L&M, Chesterfield and Next, and – you guessed it – Philip Morris. The company is present in more than 175 markets worldwide and can boast of holding the first or second market share for cigarettes and other tobacco products in most of these markets.

These leading market shares are solid assets, as despite increasing societal pressure against smoking, the tobacco industry was valued at around $867 billion in 2022 – and is expected to reach $1.05 trillion by the end of this decade.

One of the major impacts of social and political pressure against smoking has led Philip Morris to diversify its product lines more. The company is not only a leader in cigarettes, but also in the expanding market for smokeless tobacco products. In recent years, PM has invested more than $10.5 billion in such products, and the company has seen smokeless products without nicotine grow from 29.1% of total sales in 2021 to nearly 35% in 2022. The company aims to achieve 50% of sales from smoke-free products by 2025. PM’s portfolio of smokeless products includes its growing line of iQOS heated tobacco products, several e-vape products and a range of smokeless tobacco for oral use.

Philip Morris will release its Q323 financial results later this month, but we can look back at Q2 to get an idea of where the company is right now. Second quarter revenue was just under $9 billion, up 14.5% year-on-year and beating guidance by more than $259 million. The company’s profit, a non-GAAP EPS of $1.60, was 12 cents per share above expectations.

When PM reports its third-quarter results on 19 October, it expects revenue of $9.31 billion and non-GAAP EPS of $1.61.

Rising sales and profits support a solid dividend, which PM raised in its latest statement. The 13 September announcement set the quarterly common stock dividend at $1.30 per share, a 2.4% increase from the previous payout. The annualised rate of $5.20 yields 5.6%, well above the last reported annualised inflation rate of 3.67% in August.

Analyst Pamela Kaufman, who covers the stock for Morgan Stanley, focuses on the company’s conversion from cigarettes to smokeless tobacco as the most important point for investors to consider going forward. She writes: “PM is our top pick as its peer-leading growth prospects are supported by its successful conversion to smokeless products and reflect: 1) acceleration in HTU (heated tobacco units) share through the introduction of IQOS ILUMA; 2) continued rapid cyn growth in the US; 3) a large and attractive US growth opportunity for IQOS with moderate capex requirements; and 4) opportunity for EBIT margin expansion. We believe the valuation is attractive at 11x 2024 EV/EBITDA.”

Kaufman’s bullish stance supports their Overweight (i.e., Buy) rating on the stock, while their $113 price target shows their confidence in a one-year upside potential of ~24% for the stock. Add in the dividend, and the total return for the coming year is ~29%. (To check Kaufman’s track record…click here)

Overall, all 6 of the recent analyst ratings on this tobacco company are positive, resulting in a unanimous consensus rating of Strong Buy. PM shares are trading at $91.41, and the average price target of $113 implies an upside potential of ~24% on a one-year horizon. (See PM stock forecast)



Bridge Investment Group (BRDG)

The next stock, Bridge Investment Group, is a real estate investment trust (REIT), a class of company long known as a “dividend champion”. Bridge is a vertically integrated real estate manager whose portfolio includes a wide range of financial instruments and properties. This includes loans secured by real estate, as well as residential properties, office space, logistics properties and commercial leased properties.

Not only is Bridge’s portfolio diversified across categories, but the company also seeks to build diversified holdings within each category. Logistics properties include warehouses and transport hubs, for example, and the company’s developments include EV charging stations, LED lighting and solar energy systems whenever possible. Bridge’s residential properties include apartment buildings, senior housing and multi-family housing. And in lending, Bridge employs a variety of strategies to assemble a range of MBS assets.

The bottom line was that all of this resulted in distributable earnings of 20 cents per share in the company’s Q2 23 financial release, based on a net total of $35 million. This was in line with expectations. Dividend investors should note that Bridge has historically adjusted its payout to bring it in line with distributable earnings. The current dividend of 17 cents per share equates to 68 cents per ordinary share annualised and yields 7.4%, more than enough to ensure a real return in today’s environment.

This company’s dividend is attractive, but Michael Cyprys of Morgan Stanley takes a closer look at Bridge’s exposure to commercial real estate (CRE). This is a serious concern as CRE is flashing danger signals in several key urban areas, but Cyprys sees reason to believe Bridge can weather this storm and continue to deliver returns to investors. He writes: “The private market property manager is trading at a low valuation due to the general negativity arising from rising CRE risks associated with debt restructuring and valuations. We believe the market should be more critical as BRDG has limited principal and redemption risk and instead earns fees on committed, committed capital from third parties. Even if growth slows in the near term (lower fundraising and transaction activity), we still expect asset and FRE growth in the mid-teens. The Fed’s pause could lead to a pick-up in activity later in ’23 and ’24, especially if interest rate volatility is muted.

These comments underpin Cyprys‘ Overweight (i.e., Buy) rating on the stock with a $15 price target, suggesting a ~66% upside in the coming year. (To see Cyprys‘ track record… click here)

Overall, the stock receives a Strong Buy consensus rating based on 5 ratings, 4 of which are Buy and 1 of which is Hold. The stock trades for $9.01 and has an average price target of $14.30, implying a one-year upside potential of ~59%. (Check BRDG stock forecast)




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