Investors should continue to bet on dividend plays even after recent strong performance, according to Morgan Stanley.
"Macro conditions appear favorable for a continuation of strong high yield performance in the coming months. Low global bond yields are pressuring U.S. Treasury yields, while inflation outlooks are muted and the Fed appears on hold with rate hikes," Morgan Stanley equity strategist Adam Parker wrote in a note to clients Thursday.
"The low yield environment appears poised to continue for some time, which should continue to fuel demand for high yield stocks."
Parker cited how stocks with high dividend payout ratios had their "best cumulative 12-month performance" since 2006. However, the strategist suggests investors looking for high-yield investments be prudent and filter out the highest-risk dividend companies with extreme valuations.
"There are risks to high yield stocks beyond interest rate increases: investors may begin to care about elevated valuations, and dividend cuts could ensue (especially for high payout stocks) if economic growth slows," the report said.
Here are seven stocks that made Morgan Stanley's top dividend plays basket after adjusting for the firm's recommended risk factors.