[ad_1]
Dividend-focused investors should consider switching to hot chip stocks in case of subdued consumer trends after the recent market rally, according to Morgan Stanley Wealth Management. Senior investment strategist Daniel Skelly said in a note to clients Thursday that the firm is changing its dividend stock portfolio. Coffee chain Starbucks is joining the model portfolio, while popular Broadcom is leaving. Starbucks is battling rising labor costs in the U.S. and weak demand in China, its major international market. The stock price has fallen 7% over the past year. SBUX 1Y Mountain Starbucks stock has struggled over the past year. But Skelly said the market hasn’t appreciated the coffee chain’s growth potential. “SBUX is a battleground in the post-COVID-19 economy as concerns around same-store sales and international growth potential weigh on sentiment. Valuations remain at rock bottom. Given that, we believe both are overvalued and the risk-reward skew is positive in the 10-year range,” Skelly said. The addition of Starbucks helps strengthen the consumer discretionary portion of the Morgan Stanley Wealth Management Model Portfolio. Currently, the only other component in that category is Home Depot. Starbucks may be more stable than its peers, Skelly said. “Additionally, we believe the company is relatively well-insulated in the consumer space, given its exposure to the coffee category, which is habitual and may be less susceptible to changes in consumer tastes and diets. Watching,” the memo said. Starbucks’ dividend yield is 2.3%. Companies with growth concerns and sluggish stock prices may consider cutting their dividends, but new CEO Laxman Narasimhan announced his dividend strategy at a Morgan Stanley conference in December. He said there are no plans to change it. “In fact, we have a long history of maintaining a 50% payout ratio. We intend to maintain that,” Narasimhan said. Meanwhile, the rise in Broadcom’s stock price has pushed its valuation to an intolerable level for Skelly’s team. The stock is already up more than 16% since the beginning of the year and is popular among active traders. “Notably, current valuations are approximately 60% above the 10-year average (14x), giving AVGO a consensus overweight.According to MS&Co., active portfolios by institutional investors “concentration is at its highest level since 2018,” the memo said. This increase also made dividends less attractive for new investments. AVGO’s dividend yield is 1.6%, even after the company announced a dividend increase in December. —CNBC’s Michael Bloom contributed reporting.
[ad_2]
Source link
