According to Morgan Stanley, the dividend stock club may soon see some new members. Analyst Todd Castagno believes that committing to a consistent dividend sends a positive signal to the market, showing management’s confidence in the business and attracting income-oriented investors. Alphabet and Meta Platforms recently joined the club by initiating dividends, with Alphabet announcing a 20-cent per share quarterly dividend and Meta Platforms authorizing a 50-cent per share dividend.
These moves bring the total number of “Magnificent Seven” stocks offering dividends to five, including Nvidia, Microsoft, and Apple. Companies that initiate dividends tend to outperform the market, with consumer staples, energy, and communication services stocks leading the way.
Morgan Stanley identified potential dividend-initiating candidates with a market cap exceeding $35 billion, a strong net cash position, and a free cash flow yield exceeding 3%. Some of the companies on the list include technology companies like PayPal and Palo Alto Networks. Expedia Group has the highest free cash flow yield at 12.6%, despite its shares slumping due to lower full-year guidance.
Newly public grocery delivery company Instacart also made the cut, with shares surging nearly 58% this year. Lululemon Athletica, Airbnb, and Regeneron are also among the companies identified by Morgan Stanley as potential dividend initiators.