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When picking dividend-paying stocks to stabilize your portfolio in tumultuous times, don’t just go for higher yields — look for the growers, according to Morgan Stanley. “Dividends provide a positive return cushion with a notable portion of outperformance for payers versus non-payers coming during periods of market volatility,” the investment bank noted in a recent report. Dividend-paying stocks have outperformed nondividend payers across all large-cap sectors going back to 2000, except for consumer discretionary, Morgan Stanley said. In addition, dividend growers outperform over time, while high-yielding stocks can be volatile. These income providers will be even more important for investors as the economy contends with an economic backdrop where inflation remains elevated but is declining. To that end, Morgan Stanley’s analysts culled a list of top picks from within their coverage. See below for a few. Energy Transfer , a company that operates in the natural gas pipeline industry, is rated overweight by Morgan Stanley analyst Robert Kad. The stock pays an 8.9% dividend, according to FactSet. Shares are up almost 18% in 2023. “With high dividend yields (median 2024e dividend yield of 7.6%) supported by conservative balance sheets and capital allocation strategies, we believe the [midstream energy infrastructure] sector offers attractive yield for income-oriented investors,” the bank said. Morgan Stanley also likes Mondelez International , the company behind Sour Patch Kids candy and Oreo cookies. Analyst Pamela Kaufman rates the stock overweight. It pays a dividend of 2.4%, according to FactSet, but shares are up a mere 4% in 2023. “MDLZ is our key [overweight] in Packaged Food as we expect double digit EPS growth through 2025, predictable capital expenditures to help sustain its payout ratio of nearly 50%, which we view as stable and predictable,” Morgan Stanley said. A handful of banks also made the cut, including Regions Financial . Analyst Betsy Graseck has an overweight recommendation on the Birmingham, Alabama-based lender, which pays a dividend yield of 5.6%, per FactSet. Morgan Stanley anticipates banks will be able to grow their dividends about 5% in 2024. “Even in the bear case of a surprise economic hard landing with commensurately higher credit losses, we expect the vast majority of our banks will not have to reduce current dividend per share payouts thanks to modest payouts today,” the firm said. Regions Financial is down almost 21% in 2023. — CNBC’s Michael Bloom contributed reporting.
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