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. …