Morgan Stanley shakes up its Dividend Equity Portfolio

Morgan Stanley Wealth Management is swapping out a couple of names and boosting weightings in several members of its Dividend Equity Portfolio.

The team is adding CME Group (CME) and Archer-Daniels Midland (ADM).

They view “CME as a strong fit given its capital return priorities,” strategist Daniel Skelly wrote. “Notably, although its indicated yield of ~2.2% appears modest, it does not consider the potential special dividend CME typically pays at year-end (annually since 2011).”

“While this variable dividend can fluctuate based on M&A and other cash needs, we believe it offers an attractive additional income option; to wit, the trailing 12-mo yield (including $4.50 special dividend paid in December 2022) is ~4.3% which would make CME one of the higher yielding stocks in the Model.”

“ADM benefits from a strong balance sheet that allows it to allocate 30% of free cash flows towards organic growth initiatives and 70% for capital return or M&A; this should support continued dividend hikes and share buybacks, leaving us favorable on its status as a “dividend aristocrat” (with >40 consecutive years of dividend hikes),” Skelly said.

They remove PepsiCo (PEP) due to its premium valuation and Accenture (ACN) to reflect a more cautious view of IT Services and Consulting.

The portfolio by sector:

• Communication Services (XLC)

1. AT&T (T), Morgan Stanley rating Equal Weight
2. Verizon (VZ), Overweight

• Consumer Discretionary (XLY)

1. Home Depot (HD), Overweight
2. Nike (NKE), Overweight

• Consumer Staples (XLP)

1. Archer-Daniels (ADM), Equal Weight
2. Colgate-Palmolive (CL), Overweight
3. Coca-Cola (KO), Overweight
4. P&G (PG), Overweight
5. Walmart (WMT), Overweight

• Energy (XLE)

1. Exxon Mobil (XOM), Overweight

• Financials (XLF)

1. Bank of America (BAC), Equal Weight
2. CME (CME), Equal Weight
3. J.P. Morgan Chase (JPM), Overweight
4. S&P Global (SPGI), Overweight
5. Visa (V), Overweight

• Healthcare (XLV)

1. AbbVie (ABBV), Overweight
2. Amgen (AMGN), Not Rated
3. Cigna (CI), Overweight
4. J&J (JNJ), Equal Weight
5. Medtronic (MDT), Overweight
6. Pfizer (PFE), Equal Weight
7. UnitedHealth. (UNH), Overweight

• Industrials (XLI)

1. Northrop Grumman (NOC), Overweight
2. Republic Services (RSG), Overweight

• Info Tech (XLK)

1. Broadcom (AVGO), No Rating
2. Corning (GLW), Overweight
3. IBM (IBM), Equal Weight
4. Microsoft (MSFT), Overweight

• Materials (XLB)

1. Air Products (APD), Equal Weight
2. Sherwin-Williams (SHW), Overweight

• Real Estate (XLRE)

1. Crown Castle (CCI), Overweight
2. Prologis (PLD)

• Utilities (XLU)

1. NextEra (NEE)

Source: seekingalpha.com