The Federal Reserve's move to start cutting interest rates bodes well for dividend-paying stocks, and Morgan Stanley thinks several companies are poised to join their ranks. Central bank policymakers last week cut interest rates by a half point, lowering the benchmark federal funds rate to a range of 4.75% to 5.
00%. The Fed's shift in policy will result in lower yields for Treasurys and other bonds, which can make dividend-paying stocks even more attractive for income-seeking investors. Dividends can also help buffer investors' portfolios during periods of market turmoil, which could be around the corner as election season heats up and interest rates begin to normalize.
"Equity investors are seeking durable, higher yielding dividends as market volatility is expected to continue throughout the easing cycle," wrote Morgan Stanley strategist Todd Castagno in a report last Friday. Companies that have the financial wherewithal to initiate and pay regular dividends also tend to beat the market in the months after they announce these payments, his team found. Names that started dividend payments in 2024 include Alphabet , Salesforce and Meta Platforms .
Based on more than 300 dividend initiations dating back to 2000, excluding real estate companies, those that begin paying regular quarterly dividends beat the market by 6.5 percentage points in the six months following the announcement, Castagno found. Those stocks outperformed the market by 9.
2 percentage points one year after annou.