Home — Finance Morgan Stanley’s Dividend Plan Wows Wall Street, While Citigroup’s Disappoints

Morgan Stanley’s Dividend Plan Wows Wall Street, While Citigroup’s Disappoints


Morgan Stanley’s move to double its quarterly dividend to 70 cents a share cheered investors. The new compensation exceeded an optimistic projection of 55 cents from Barclays analyst Jason Goldberg. The action reflects growing confidence by the company’s management in its financial outlook. The stock was up $2.85 in premarket trading on Tuesday, to $90.55.

“The action taken by the board reflects a decision to reset our capital base consistent with the needs we have for our transformed business model,” Morgan Stanley CEO James Gorman said in a statement. “Wealth Management and Investment Management provide stable and durable earnings that support a significantly higher payout ratio.”

Morgan Stanley (ticker: MS) bought E*Trade Financial in 2020 to expand its retail brokerage business and closed on its purchase of asset manager Eaton Vance earlier this year.

The new Morgan Stanley dividend of $2.80 a share will yield about 3.1% and produce a payout ratio of about 40% based on projected earnings of around $7 a stake in the coming four quarters. Other big banks have dividends in the 2% to 3% range.

Morgan Stanley’s dividend is one of the highest among its peers, and so is its projected payout ratio. Morgan Stanley was one of the few big banks to lay out stock repurchase plans, saying it plans to buy back $12 billion of stock over the next 12 months, above the consensus of $11.25 billion. Morgan Stanley could return 10% of its current market value to shareholders in the coming year between its buyback and dividend.

In contrast, Citigroup (C) said it would have a dividend of “at least 51 cents a share,” It now pays 51 cents a share. Citigroup had been expected to boost its dividend to 54 cents from 51 cents, so its announcement to spend at least a premium of 51 cents a share surprised Wall Street.

“The dividend was a disappointment relative to expectations,” says Michael Mayo, banking analyst at
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Morgan Stanley“But Citi made it clear that it wants to put every incremental dollar into stock buybacks with the stock at such a low price. I think that’s 100% the right move.”

Citi is the only major bank trading below tangible book value. The stock was off 41 cents in premarket trading to $71.10, below the actual book value of around $75 a share.

“Citi should be selling the silverware in the dining room, the artwork, and the potted plants to buy back stock,” Mayo said.

Mayo said banks now have greater flexibility on dividends and buybacks under Fed rules. Many chose not to target a specific level of buybacks in the coming year to give themselves flexibility.

“We look forward to continuing with our planned capital actions, including common dividends of at least $0.51 per share, and to continuing share repurchases, which are particularly attractive when our stock price is below tangible book value per share,” CEO.
Jane Fraser said in a statement. Citi already has one of the higher yields among its peers at about 2.9%

Goldman Sachs Group

(GS) boosted its dividend by 60%. Goldman’s move to increase its dividend to $2 a share from $1.25 a share was in line with Goldberg’s estimate but above the consensus. Goldman shares have reacted favorably, with the stock up over $5 in premarket trading to $374.Goldman’s dividend yield is 2.1%. The firm is taking a more conservative tack than Morgan Stanley, with a payout ratio in the low 20s based on projected earnings.

Wells Fargo (WFC) doubled its dividend to 20 cents from 10 cents, resulting in a yield of 1.7%, with the stock around $46. The new compensation brings the bank only part of the way back to its old payout of 51 cents a quarter, slashed last year.

Like Citi, Wells Fargo emphasizes its stock buyback with a planned $18 billion over the next 12 months.


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