These stocks offer rising dividends and the prospect of higher returns, Morgan Stanley says

Morgan Stanley advocates for dividend-paying stocks with consistent payout growth as a strategy to mitigate volatility in the current high-valuation market. Their screen identified Oracle, buoyed by AI-driven growth and strong guidance, alongside American Homes 4 Rent, a REIT that raised FFO guidance, and T-Mobile, which saw a price target adjustment due to secondary sales. While these selections emphasize defensive positioning and steady returns, analyst consensus often implies limited near-term upside from current levels.

Analysis

In a market environment characterized by record highs for the S&P 500, which has surged 9.6% in 2025, Morgan Stanley advocates a defensive posture centered on dividend-growth stocks to mitigate volatility and support total returns. The firm's screen identifies companies in the Russell 1000 with a dividend yield of at least 0.25% and a quarter-over-quarter dividend hike of at least 15% over the past year. Oracle (ORCL) emerges as a key highlight, despite a modest 0.8% yield, driven by a 49% stock price increase in 2025, strong fiscal fourth-quarter results, and bullish forward guidance projecting over $67 billion in fiscal 2026 revenue. The company's positioning as a structural AI winner is reinforced by a Mizuho price target upgrade to $300, though the consensus target of $247.23 suggests limited near-term upside. In contrast, American Homes 4 Rent (AMH), a real estate investment trust, offers a higher 3.5% yield but has seen its shares decline nearly 8% in 2025. The company recently raised its 2025 funds from operations (FFO) guidance to a midpoint of $1.86 per share, and analyst consensus implies a notable 18% upside. T-Mobile (TMUS) presents another case, with a 16% gain in 2025 and a 1.4% yield, but its outlook is tempered by a price target cut from Morgan Stanley's own analyst to $265, citing an overhang from secondary stock sales, and a consensus target suggesting only 5% upside.

Key Decisions for Investors

• Given the elevated market valuations, investors could consider shifting focus towards companies with strong, growing dividends as a defensive strategy to potentially dampen portfolio volatility.
• For Oracle, investors should balance the compelling long-term AI growth narrative and strong corporate guidance against the limited near-term upside implied by the current consensus price target.
• American Homes 4 Rent may appeal to investors seeking yield and value, as its 3.5% dividend yield and raised FFO guidance contrast with its recent stock underperformance, while consensus estimates project 18% upside.
• When evaluating T-Mobile, it is crucial to monitor the overhang from secondary stock sales, which has tempered analyst price targets, despite the stock's strong year-to-date performance and majority buy-side rating.