Best Dividend Investments to Buy Now Among High Yield Equities: GS

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  • Goldman Sachs says investors are likely to seek out high-dividend stocks as economic growth slows.
  • The firm is highlighting stocks that should offer growing dividends and bigger absolute payments.
  • Strategist David Kostin says the dramatic post-crash profit growth is just starting to get paid out.

Stocks are breaking all sorts of undesirable records lately, like the worst month for tech stocks in 14 years or the worst January through April for every major index.

In a recent note to clients, Goldman Sachs Chief US Equity Strategist David Kostin wrote that investors have gone defensive and are preparing for a major slowdown in growth — the exact situation that played out over the first three months of the year as the economy contracted.

Slower growth is usually good news for big dividend payers, Kostin wrote. While slower economic growth is generally bad for businesses and dampens returns for stocks, companies that are able to make larger dividend payouts to shareholders during periods of economic decline get bigger rewards.

But he suggests investors are focusing too much on what’s happening to markets right now while underestimating the recent spate of outsized earnings that companies enjoyed over the past few quarters. According to Kostin, corporate profits spiked in 2021 as the effects of the pandemic on businesses began to fade, and dividends usually grow after profits do. 

“Dividend growth exhibits a lagged relationship with earnings growth,” he said. “Realized EPS growth of 47% and just 4% DPS growth in 2021, coupled with expected EPS growth of 5% in 2022, should translate into strong dividend growth this year.”

Not only is dividend per share growth likely to be stronger than expected this year, Kostin believes that investors aren’t expecting much in 2023 and 2024. That might be because they’re concerned that a


recession

is coming, but the result is that they’re underestimating the effects of the earnings growth of the last few years.

“The futures market is expecting S&P 500 dividend growth to be negative in 2023 and 2024,” he said. “Looking ahead, our forecast implies 6.7% CAGR dividend growth over the next ten years, significantly above market pricing of 0.4%.”

That suggests there is a lot of potential in dividend-paying stocks, especially for companies that could raise their dividends at a market-beating clip. That will make them all the more appealing to investors regardless of the performance of the economy.

Kostin and company project that the 14 companies below will have much better-than-average dividend growth over the next few years. While they don’t have the highest current dividend yields, they are trading at discounts, and Goldman Sachs thinks they have safer dividends than some companies that currently offer higher yields.

The stocks are ranked from lowest to highest based not on their


dividend yield

ratios, but on their projected dividends per share — a measure of their expected absolute return, instead of a metric that depends on price.

Collectively, Kostin and his firm think these companies will deliver more than twice the dividend growth of the entire S&P 500 along with their greater dividend yields.



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