Morgan Stanley Wealth Management recently revamped its dividend equity model portfolio, adding positions in two new stocks – including a hot utilities play. The firm’s Equity Model Portfolio Solutions team added Constellation Energy and General Dynamics to its dividend equity portfolio. Constellation Energy, which is enjoying a rally of nearly 70% in 2024, will “increase Utilities sector exposure via a company that should benefit from structurally higher power prices and potential datacenter upside,” wrote Daniel Skelly, senior investment strategist, in a report on Wednesday. Constellation owns and operates 21 nuclear reactors, with capacity for 173 terawatt hours of power generation, Skelly added. “We believe nuclear power will become a key energy priority given its carbon-free profile and ability to provide large amounts of reliable electricity,” the strategist noted. Further, data centers could call for up to 400 terawatt hours of electricity by 2030, according to Mizuho Securities . This demand for reliable power, especially as generative artificial intelligence proliferates, could be a boon for Constellation. “Notably nuclear appears appropriate to hyperscaler data center requirements which need high power supply and reliability,” Skelly wrote. “By adding CEG we increase the Model’s Utility sector exposure via a company that has secular growth tailwinds and a low carbon emissions profile.” Constellation is also a popular name on Wall Street, with about 75% of the analysts covering the name rating it a buy or strong buy, according to LSEG. Consensus price targets call for nearly 14% of upside from current levels. General Dynamics also joined Morgan Stanley Wealth Management’s dividend equity model portfolio. Skelly’s team dubs the aerospace name a “high quality” prime contractor in the defense industry that is poised to do well at a time of heightened geopolitical tensions. “Regardless of the political make-up of Congress post-November we believe defense spending should remain well supported given current conflicts across the globe,” he wrote. The stock, up 15% in 2024, has a dividend yield of 1.9%. In addition to its offerings in combat and marine systems, General Dynamics also builds business jets. “GD is also ramping production of its new Gulfstream biz jet which should continue to scale as manufacturing inefficiencies and certifications are lapped,” Skelly said. Among analysts covering the stock, 80% deem it a buy or strong buy, according to LSEG. Consensus price targets imply nearly 8% upside from current levels. Skelly’s team cut a notable stock from its dividend equity model portfolio. “We are removing Microsoft Corp to take gains on an out of benchmark position, particularly given potential risk related to quarterly capex cadence related to Gen AI investments,” he wrote. The company aggressively invests in computing and data center infrastructure to support generative AI models, and its total capital intensity has also increased – which could weigh on profit margins and affect its capital return priorities, Skelly added. Since Microsoft was added to the portfolio in Oct. 2022, shares have rallied 69%, Skelly added. Shares of Microsoft are up 11% in 2024, and offer a dividend yield of 0.7%.
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