Beat the Nasdaq? This Dividend Stock Has Actually Done It.

When you think of Nasdaq 100 stocks and dividend stocks, you probably have two very different views of each. Nasdaq stocks are usually high-flying technology companies with lots of earnings growth, while dividend stocks are associated with steady, stable value stocks, often in the financial sector.

But sometimes, you get those steady, stable dividend stocks that also exhibit growth. Here's one stock that not only pays out a nice dividend but also has beaten the Nasdaq over the short-term and long-term -- Morgan Stanley (NYSE: MS).

High dividend, better returns

Morgan Stanley is as blue chip as blue chip gets, as the financial services giant has a history that dates back to 1925 and is one of the leading investment bankers and wealth managers in the country. But for such a giant name with a well-known, rock-solid brand, its stock has largely flown under the radar as an investment.

But let's look at the numbers, starting with its dividend. The stock recently declared a $0.78 per quarter dividend, good for an above-average 3.5% yield at current share prices. It has increased its dividend every year for the past nine years, so if it bumps it up in the third quarter, as it typically does, it would be 10 straight years of annual increases.

Now let's look at the returns, specifically the total returns, which would included those reinvested dividends, and compare them to the Invesco QQQ (NASDAQ: QQQ), an exchange-trade funds that invests in the Nasdaq 100. Over the past one-year period, Morgan Stanley has had a total return of 10.2% compared to -2.6% for the Invesco QQQ. Over the past three years, Morgan Stanley has had an annualized return of 37.4% compared with 14.6% for the QQQ.

As we pull back a little farther, the picture changes a bit. Over the past five years, Morgan Stanley has had an annualized return of 14.4%, a little shy of the Invesco QQQ, which has an annualized return of 15.6% over that stretch. But over the past 10 years, Morgan Stanley has beaten the QQQ, with an annualized total return of 18% to 17.4% for the QQQ. All of these numbers are as of April 24.

QQQ Chart.

QQQ data by YCharts.

So, in every snapshot except the five-year period, Morgan Stanley beats the Nasdaq 100.

Is Morgan Stanley a good investment?

Based on past performance, Morgan Stanley has been a great investment in recent years. But where does it stand now? Can investors expect more of the same?

As one of the two largest investment banks in the country, Morgan Stanley has taken a major revenue hit from that business, as investment banking and mergers & acquisitions have slowed dramatically over the past year or so. But the company has a well-diversified revenue base, and it has been buoyed in this difficult environment by strong performance in its market-leading wealth management business.

In the first quarter, Morgan Stanley's revenue declined 2% year over year to $14.5 billion, while net income dropped 19% to $3 billion on higher expenses and provisions for credit losses. However, wealth management saw a 12% increase in revenue year over year to $6.6 billion and brought in $110 billion in net new client assets.

Morgan Stanley is definitely a stock that will perform better in a good economy, and its investment banking, investment management, and institutional securities business will all surge higher in a growing economy with lower interest rates and inflation. We may be a year or more away from that, but even in this slow stretch, Morgan Stanley beat the markets, with the stock down about 10% last year, thanks in large part to its wealth management business.

The stock is up about 5% year to date, and the average analyst price target is $102 per share, which would be about a 15% increase from its current price. Also, the stock looks to have a fair valuation with a forward price-to-earnings ratio of 13.

There could be some bumpy months ahead, given projections for the economy, but Morgan Stanley still shines as a good long-term stock.

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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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