Dividend growth stocks have proven to be better choices than their high-yielding counterparts, according to research conducted by Morgan Stanley. These equities, which have consistently increased their dividend for 25 years, have consistently outperformed the S&P 500.
In fact, since 2000, dividend-paying equities have outperformed their non-dividend-paying peers in all large-cap sectors, with the exception of the consumer discretionary sector. However, it's worth noting that the outperformance of dividend growers is less significant within small-cap stocks.
While high-yielding stocks may seem attractive in the short term, they tend to be more volatile in the medium to long term and offer mean-reverting returns. Therefore, it is important to consider the potential risks associated with these stocks.
Moreover, the current macroeconomic environment, characterized by elevated but easing inflation, favors dividend-paying stocks. Morgan Stanley anticipates that inflation will continue to decrease from its high levels in the coming months.
Looking ahead, Morgan Stanley has identified several stocks that they believe will be attractive from a dividend perspective over the next three to five years. These stocks are listed in the table below.
Despite some uncertainty in the market, U.S. stocks closed mostly higher on Wednesday. The S&P 500 saw a slight increase of less than 0.1%, while the Nasdaq Composite experienced a 0.2% gain. However, the Dow Jones Industrial Average dipped 0.2% on the same day.