How will the declared preferred stock dividends affect Morgan Stanley's overall cost of capital? | MS (Aug 15, 2025) | Candlesense
MS

How will the declared preferred stock dividends affect Morgan Stanley's overall cost of capital?

Impact on Morgan Stanley’s cost of capital

The newly‑declared cash dividends on the three outstanding preferred‑stock series (A, C and E) raise the firm’s preferred‑equity payout rate. In a WACC calculation the cost of preferred capital is simply the dividend yield ( D/P ) divided by the net issue price. By issuing a $0.337 per DS on Series A, $0.25 per share on Series C and $0.455 per DS on Series E, Morgan Stanley’s effective preferred‑stock cost will move upward proportionally to the current market price of each series. Assuming the market values of the preferred securities remain unchanged, the incremental increase in the preferred‑cost component will push the overall WACC higher by a few basis points – roughly 0.05‑0.15 % given that preferred capital typically represents a modest share of the capital mix (≈5‑10 % of total equity).

From a fundamentals perspective, the higher preferred‑dividend signals that the firm is using a relatively low‑cost, stable financing tier rather than issuing new senior debt, which can be viewed as a defensive move in a rising‑interest‑rate environment. However, the added cash outflow reduces free cash flow available for growth projects, slightly tightening the return‑on‑capital hurdle for new investments.

Trading implications

* Short‑term: The dividend declaration is a neutral‑to‑positive catalyst for the preferred securities themselves—prices may hold or modestly rise on the “steady‑income” narrative.

* Equity: The marginal rise in WACC exerts a small downward pressure on the common‑stock valuation, especially for any high‑growth segments that are sensitive to discount‑rate changes. Expect a modest‑sized, possibly bearish, reaction in the underlying common‑share price if the market interprets the higher cost of capital as a drag on future earnings.

* Action: Consider a light‑short position on the common equity if the price is already trading at a premium to fundamentals, or a long stance on the preferred series if you seek a higher‑yield, low‑volatility exposure. Keep an eye on the spread between the preferred dividend yields and the prevailing Treasury curve—if the spread narrows, the preferreds could face price pressure.

Other Questions About This News

Will the dividend payouts on Series A, C, and E preferred shares attract new investors or trigger redemptions? What is the yield on each of these preferred dividends compared to the current market rates? How does the dividend size compare to Morgan Stanley's historical preferred dividend trends? Are there any covenants or reset features tied to the floating‑rate preferred securities that could impact future payouts? What impact might the preferred dividend announcements have on the trading volume and price of Morgan Stanley's common stock (MS)? How does Morgan Stanley's preferred dividend policy compare to those of other major investment banks offering similar securities? Could the dividend declarations signal confidence in cash flow stability, and how might that influence analyst sentiment? What are the tax implications for holders of the preferred shares receiving these dividends? Is there any indication that Morgan Stanley will issue additional preferred shares or modify existing terms in the near future?