Morgan Stanley shakes up its Dividend Equity Portfolio
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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 âdividend aristocratâ (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)

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

Consumer Discretionary (XLY)

Home Depot (HD), Overweight
Nike (NKE), Overweight

Consumer Staples (XLP)

Archer-Daniels (ADM), Equal Weight
Colgate-Palmolive (CL), Overweight
Coca-Cola (KO), Overweight
P&G (PG), Overweight
Walmart (WMT), Overweight

Energy (XLE)
Exxon Mobil (XOM), Overweight
Financials (XLF)

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

Healthcare (XLV)

AbbVie (ABBV), Overweight
Amgen (AMGN), Not Rated
Cigna (CI), Overweight
J&J (JNJ), Equal Weight
Medtronic (MDT), Overweight
Pfizer (PFE), Equal Weight
UnitedHealth. (UNH), Overweight

Industrials (XLI)

Northrop Grumman (NOC), Overweight
Republic Services (RSG), Overweight

Info Tech (XLK)

Broadcom (AVGO), No Rating
Corning (GLW), Overweight
IBM (IBM), Equal Weight
Microsoft (MSFT), Overweight

Materials (XLB)

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

Real Estate (XLRE)

Crown Castle (CCI), Overweight
Prologis (PLD)

Utilities (XLU)
NextEra (NEE)

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