Morgan Stanley Wealth Management recently refreshed its dividend stock model portfolio, adding positions in two new stocks, including popular utility names. The firm’s Equity Model Portfolio Solutions team added Constellation Energy and General Dynamics to its dividend stock portfolio. Constellation Energy, which is expected to rise about 70% in 2024, “increases exposure to the utilities sector through a company that benefits from structurally high electricity prices and potential data center upside,” senior investment strategist Daniel Skelly wrote in a report on Wednesday. Constellation owns and operates 21 nuclear reactors with a generating capacity of 173 terawatt-hours, Skelly added. “We believe nuclear will be a key energy priority given its zero carbon emissions profile and ability to provide large amounts of stable power,” the strategist noted. Additionally, data centers could require up to 400 terawatt-hours of power by 2030, according to Mizuho Securities. This demand for reliable power could be a boon for Constellation, especially as generative artificial intelligence becomes more prevalent. “Nuclear, in particular, appears well-suited to the requirements of hyperscaler data centers, which require high power supply and reliability,” Skelly wrote. “The addition of CEG increases our model’s exposure to the utility sector through a company with secular growth tailwinds and a low carbon emissions profile.” Constellation is also a popular stock on Wall Street, with about 75% of analysts covering the stock rating it a buy or strong buy, according to LSEG. The consensus price target projects an upside of about 14% from current levels. General Dynamics has also been added to Morgan Stanley Wealth Management’s Dividend Equity Model Portfolio. Skelly’s team calls the aerospace stock a “high-quality” prime contractor in the defense industry that is poised to perform well during a time of rising geopolitical tensions. “Regardless of the political makeup of Congress beyond November, we believe defense spending should remain well supported given the current conflicts occurring around the world,” he wrote. The company’s shares, which are set to rise 15% in 2024, have a dividend yield of 1.9%. In addition to providing combat and maritime systems, General Dynamics also manufactures business jets. “General Dynamics is also ramping up production of new Gulfstream business jets due to manufacturing inefficiencies and expired certifications, which should continue to grow,” Skelly said. LSEG said 80% of analysts covering the stock consider it a buy or strong buy. The consensus price target suggests an upside of about 8% from current levels. Skelly’s team removed noteworthy stocks from its Dividend Stock Model portfolio. “We exclude Microsoft Corp. to take profits off its off-benchmark positions given potential risks regarding the pace of quarterly capital spending, particularly related to its General AI investment,” he wrote. The company has been investing aggressively in computing and data center infrastructure to support its generative AI models, which is also increasing total capital intensity, which could reduce margins and impact capital return priorities, Skelly added. Skelly added that Microsoft shares have risen 69% since being added to the portfolio in October 2022. Microsoft shares are forecast to rise 11% in 2024 and have a dividend yield of 0.7%.
Morgan Stanley Wealth adds utilities to dividend stock portfolio
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