Morgan Stanley says these ‘dividend hopefuls’ are poised to outperform if they initiate a payout
Dividend stocks may help boost investor returns over time, and Morgan Stanley thinks a number of companies are in a position to begin paying them. In fact, those that start issuing dividends have the potential to earn “outsized returns,” strategist Todd Castagno said in a note Wednesday. The bank found that names who initiate a regular, quarterly dividend outperformed the market, on average, by 650 basis points in the six months following the announcement. They outperform by 1,000 basis points in the 12-month post-announcement period, Castagno wrote. One basis point is equal to 0.01%. That is in addition to the benefit of compounding returns in the long run if the dividends themselves are reinvested. “Most dividend initiating companies start their payments at a 2.0% yield, on average, with the highest initial yields coming from Consumer Staples, Utilities, and Energy sectors and the lowest yields in Information Technology, Industrials, and Consumer Discretionary,” he said. With that in mind, Castagno and his team looked for companies that have the ability to initiate dividends. To identify these so-called “dividend hopefuls,” he screened for companies that don’t currently have a quarterly payout, have a net cash position greater than 5% of their market cap and a free cash flow yield that exceeds 5%. Here are some of the names that made the list. Centene ticks all the boxes for a dividend, including an 18% free cash flow yield, Castagno said. Greenlight’s David Einhorn is among those bullish on the health insurer, pitching it as one of his five investment ideas at the Sohn Investment Conference earlier this month. “Artificial Intelligence is well suited to automate manually, repetitive functions. We think Centene could be a huge beneficiary of AI in this fashion,” he said. Centene also recently blew past expectations for its adjusted earnings per share and revenue for its first quarter. In addition, the company raised its full-year guidance. The stock has risen 44% so far this year. BioMarin Pharmaceutical also made the cut with its 10.4% free cash flow yield and net cash position that is 7.6% of its market cap. The drugmaker expanded its reach in rare metabolic diseases when it completed the $4.8 billion acquisition of Amicus Therapeutics last month. Amicus’ portfolio includes approved genetic disorder medications such as Galafold, an oral drug for Fabry disease, which is caused by a genetic mutation that results in the accumulation of fatty substances within cells. “With the acquisition of Amicus Therapeutics complete, the addition of GALAFOLD and POMBILITI + OPFOLDA to our commercial portfolio allows us to reach patients with Fabry and Pompe diseases and meaningfully strengthens and accelerates our near-to-mid-term growth rates,” CEO Alexander Hardy said in the company’s quarterly earnings release earlier this month. The acquisition costs led BioMarin to slightly reduce its full-year 2026 guidance for non-GAAP earnings per share, but it boosted its full-year revenue guidance. It now anticipates revenue to come in between $3.825 to $3.925 billion, up from its prior guidance of $3.325 billion to $3.425 billion. Shares are down 6% year to date. Meanwhile, Duolingo has sunk nearly 36% so far in 2026. The maker of the popular language-learning app recently reported first-quarter revenue and earnings before interest, taxes, depreciation and amortization that topped expectations. However, its daily and monthly active users came in below estimates. It reported 137.8 million daily active users in the first quarter, up from 133.1 million in the prior quarter but short of the 145.6 million expected from analysts polled by StreetAccount. Duolingo aims to reach 100 million daily active users in 2028. “We believe that a larger user base will make Duolingo a significantly more valuable company, so we are prioritizing teaching better and growing our audience,” CEO and co-founder Luis von Ahn said in a shareholder letter . Lastly, Deckers Outdoor last week posted a beat on the top and bottom line for its fiscal first quarter. The maker of Hoka sneakers and Ugg boots has a 6.7% free cash flow yield, Castagno said. Stifel analyst Peter McGoldrick is among those who rate the stock a buy. “Deckers’ portfolio of category-defining brands holds credible growth runway, advantaged margin structure, and standout return metrics,” he wrote in a note Friday. Shares have gained nearly 10% this year.
