Morgan Stanley says buy these quality stocks. They also pay dividends
As the market broadens out, investors should seek quality stocks, according to Morgan Stanley. On Tuesday , the Dow Jones Industrial Average rallied, while the Nasdaq Composite slipped. The Technology Select Sector SPDR Fund (XLK) reached its lowest level since May 7. Meanwhile, health care stocks and financials moved higher. The rotation toward quality now underway is a “classic mid-cycle transition as the business cycle matures,” said Mike Wilson, Morgan Stanley’s chief U.S. equity strategist. “From here, margin expansion is likely to depend less on early-cycle operating leverage and more on AI adoption, reinforcing our quality thesis,” he wrote in a note Monday. “Near-term consolidation and even further downside toward 7000 remains possible if the war continues to escalate and/or the Fed unexpectedly hikes this week, but the quality rotation should ultimately support index resilience and even broad participation, albeit with different leadership.” The S & P 500 is currently holding above 7,430. Wilson told CNBC’s ” Squawk Box ” in an interview Tuesday that a 7,000 level on the broad market index “will be defended” and the benchmark should hit 8,000 by year end. In this environment, Morgan Stanley favors high free-cash-flow yield, low variability on earnings per share, strong balance sheets and high margins. Wilson and his team screened for those quality names that the firm rates overweight. Many of those stocks also pay income. Here are some of the dividend payers that made the cut. Coca-Cola , which has a 2.41% dividend yield, saw its shares jump more than 4% on Tuesday after its latest earnings report . The beverage giant beat on both the top and the bottom lines for the second quarter and also raised its full-year outlook. Last month, Morgan Stanley reiterated its overweight rating on the stock. “Coke remains our Top Pick, with outsized LT OSG [long-term organic sales growth] reinforced by recent positive short-term developments, including ramping sales growth at Fairlife in US scanner data in the last 6 weeks as incremental capacity builds, as well as continued strong pricing vs CPG [consumer packaged goods] peers, where we think visibility is building with increased competitive advantage at Coke vs key peers PEP/KDP,” analyst Dara Mohsenian said in a June 10 note. The stock has gained 26% year to date. Colgate-Palmolive , which yields 2.26%, is another consumer staples name that made the list. The personal care company is expected to report its second-quarter earnings on Friday. Morgan Stanley reiterated its overweight rating and top pick status for the stock in May, noting that Colgate-Palmolive’s long-term outlook looks brighter. “We see room for multiple expansion beyond solid YTD stock performance,” wrote analyst Mohsenian in a client note. Shares are up roughly 18% so far in 2026. Oilfield services company SLB has moved 31% higher year to date. It also recently posted an earnings and revenue beat for its second quarter. The company said its offshore drilling activity more than offset disruptions in the Middle East. “Excluding the Middle East, revenue grew sequentially across all Divisions, supported by higher offshore activity, a rebound in U.S. unconventionals and strong demand for production and recovery solutions,” CEO Olivier Le Peuch said in the earnings release. SLB shares are up more than 30% in 2026, and the stock has a dividend of 2.35%. Lastly, Gilead Sciences is set to post its latest results next week. In a note earlier this month, Morgan Stanley said it expects 2026 sales of the biopharmaceutical company’s HIV-prevention shot, Yeztugo, to reach $1.1 billion, versus the $1.05 billion consensus estimate and Gilead’s guidance of $1 billion. Gilead, which has a 2.43% dividend yield, is up almost 10% this year.
