Morgan Stanley suggests that investors can counteract typical September stock volatility by focusing on companies that consistently grow their dividends. The investment bank screened the Russell 1000 for stocks that have raised payments by at least 15% quarter-over-quarter in the past year, finding names like East West Bancorp, Packaging Corporation of America, and Devon Energy. These companies offer stable income streams, signal market confidence, and have historically outperformed after dividend hikes, presenting potential upside for portfolios.
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As September often brings turbulent market conditions, Morgan Stanley suggests that investors can navigate this volatility by adding select dividend-paying companies to their portfolios. Despite the month being only four days old, the S&P 500 has already seen a 0.4% gain, following a week marked by fluctuating Treasury yields, rising oil prices, and uncertainty surrounding the Federal Reserve's upcoming interest rate decision.
According to Morgan Stanley strategist Todd Castagno, dividend stocks offer a crucial buffer during uncertain times. In an August report, Castagno highlighted, "Dividends can offer a reliable income stream, signal confidence to the market, and help stabilize [a] portfolio during periods of uncertainty and high valuations." His research indicates that stocks tend to outperform by an average of 3.1% six months after companies announce dividend increases.
To identify promising opportunities, Castagno's team screened the Russell 1000 index for companies that have boosted their dividends by at least 15% quarter-over-quarter within the last 12 months. Several names stood out:
- East West Bancorp: This California-based bank raised its quarterly dividend by 20 cents to 80 cents per share in January. The stock has performed strongly in 2026, up 16%, and currently offers a 2.4% dividend yield. East West surpassed analyst expectations in its second-quarter earnings, reporting $2.63 per share on $791 million in revenue, against FactSet's consensus of $2.61 per share and $785.5 million. The bank also increased its full-year net interest income growth forecast to 7-9% year-over-year. LSEG data shows that 13 out of 17 analysts rate East West Bancorp as a 'buy' or 'strong buy', with an average price target suggesting 13% upside.
- Packaging Corporation of America: Featured by Morgan Stanley, this company boasts a 2.5% current dividend yield and is up 15% year-to-date. In May, Packaging Corp. increased its quarterly dividend by 20%, bringing its annual payment to $6 per share. LSEG reports that over half of covering analysts rate the stock a 'buy' or 'strong buy', with consensus price targets implying 7% upside from current levels.
- Devon Energy: Morgan Stanley identified Devon Energy as a favorite in the exploration and production sector, especially as oil prices approach $100 a barrel. Analyst Devin McDermott noted, "We prefer Integrateds & Majors with strong refining leverage and select oil E&Ps with positive rate of change." Devon Energy also recently appeared on Goldman Sachs' list of affordable dividend-paying energy stocks. It offers a 2.3% current dividend yield and has surged 31% year-to-date. The company's board approved a 33% dividend increase in May, raising the payment to 32 cents per share. According to LSEG, nearly all (27 out of 30) analysts rate Devon Energy a 'buy', with price targets suggesting nearly 23% upside.
Other notable companies on Morgan Stanley's list of consistent dividend growers include Nvidia, Royal Caribbean, and Capital One Financial.
