Thursday, May 31, 2012

Morgan Stanley Drops XOM, UNP, Adds T to Dividend Portfolio

Morgan Stanley goes to bat for dividend-paying stocks in a U.S. equity research report this week. In a nutshell, MS argues the payout ratio of dividend stocks is near an all-time low and could increase substantially from here and still remain low by historical standards. In a week when ten-year Treasury yields are breaching new historic lows, dividend yields are increasingly attractive by comparison. And despite looming threats to dividend taxation rates, there’s no compelling reason to bail on dividend stocks for that reason at this point.

MS recommends investors continue to overweight utilities and health care, despite the fact that the defensive sectors have now been the best performers for the past three months. MS recommends underweights in consumer discretionary and industrials, and says it’s removing Exxon Mobil Corp. (XOM) and Union Pacific Corp. (UNP) from its portfolio and adding AT&T Inc. (T), which moves MS to market-weight in telecoms and underweight industrials.

Beyond that, MS lists some current high-yielding stocks that it labels safe and “fundamentally and quantitatively attractive,” including Chevron Corp. (CVX), MetLife Inc. (MET), Freeport-McMoRan Copper & Gold Inc. (FCX), Franklin Resources Inc. (BEN), Cardinal Health Inc.(CAH), Fifth Third Bancorp (FITB), St. Jude Medical (STJ) and Staples Inc. (SPLS).

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