Morgan Stanley Restructures Dividend Equity Portfolio

Morgan Stanley has strategically refreshed its Dividend Equity Portfolio, making adjustments that reflect shifting market dynamics and reassessing risk and opportunity.

Key Changes

One major change is dropping Microsoft Corp (NASDAQ:MSFT), a leading tech name. This decision aligns with Morgan Stanley’s strategy to focus on sectors and companies with strong dividend yields, defensive characteristics, and promising growth, particularly in a time of escalating geopolitical tensions and evolving economic conditions.

New Additions

The portfolio includes two new companies: General Dynamics Corp (NYSE:GD) and Constellation Energy Corp.
– General Dynamics is a leading defense contractor that stands to benefit from increased global defense spending. Its diverse operations in combat systems, marine systems, and aerospace position it favorably for expanded defense budgets, particularly in the U.S. and NATO countries. The ramp-up of Gulfstream business jet production also supports its growth outlook. Morgan Stanley’s Aerospace and Defense analyst upgraded its stock to Overweight, with a price target of $345, indicating a potential 21% return.

• Constellation Energy, the largest nuclear utility in the U.S., has been added to enhance the portfolio’s exposure to the Utilities sector. It is strategically important as energy demands rise, especially from constrained grids. Its nuclear capabilities, supported by production tax credits, make it an appealing addition. Analysts see Constellation as well-poised for benefiting from the demand for low-emission, reliable power, with a price target of $233.

Microsoft’s Departure

Despite a 69% gain since joining in October 2022, Microsoft’s removal is surprising. Concerns revolve around rising capital expenditures related to generative AI and cloud infrastructure, which may pressure its margins and dividend sustainability.

By divesting from Microsoft, Morgan Stanley can reallocate funds towards higher-yield and more defensively positioned stocks, more closely aligning with its portfolio objectives.

Ongoing Adjustments

Morgan Stanley also adjusted the weights of several other stocks as part of risk management. Positions in Merck & Co. Inc, M&T Bank Corp (NYSE:MTB), and Johnson & Johnson (NYSE:JNJ) were increased, while exposure to T-Mobile US (NASDAQ:TMUS) and Starbucks Corp (NASDAQ:SBUX) was reduced due to competitive pressures and growth challenges.