Goldman Sachs Doles Out Dividend Advice

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Everyone and their brother is wondering where America’s skyrocketing stock indices are going to go from here.

If you believe Goldman Sachs (GS), that answer is onward and upward.

In short, Goldman’s bullish view (recently highlighted here) is that the S&P 500 will rise another 5% this year to around roughly 1750, another incremental 9% next year to 1900, and one more jump of 10% to the 2100 mark in 2015.

If that’s true, we can prepare to do some cartwheels, but what caught my eye in the GS report (other than the glowing forecast) was its views on dividend growth.

Goldman anticipates S&P payouts will increase by nearly 11% in 2013 and 2014, then by another 9% in 2015. All in all, we’re looking at a potential dividend growth rate of between 30% and 31% over the next three years.

Be still, my heart!

Now, there is plenty of evidence that the market is somewhat overpriced, and investors are concerned they’ve already missed out on the big gains. Indeed, the average S&P 500 company’s forward price-to-earnings multiple sits at 14.6, above the average of 12.9 since 1978. But as GS points out, that’s still lower than the 15.3 average multiple we’ve seen since 1990.

I’m not suggesting the market is necessarily cheap — but when you weigh in their potential for appreciation with this beautiful income opportunity, even fairly priced or slightly overpriced dividend stocks are a better investment than letting your money rot in a fractionally yielding CD!

Goldman also provides a bit of a head start for investors, highlighting a list of 10 stocks in their dividend portfolio:

Company Ticker Dividend Yield
AT&T T 4.85%
Chevron CVX 3.17%
Dow Chemical DOW 3.57%
Ford F 2.62%
General Electric GE 3.16%
Mattel MAT 3.07%
Philip Morris PM 3.58%
U.S. Bancorp USB 2.19%
Walgreen WAG 2.16%
Western Union WU 2.98%

I can’t argue too much with this starter list: AT&T, Chevron and Walgreen have earned the title of Dependable Dividend Stocks for their unflinching, ever-increasing payouts, and while both Ford and General Electric had a rough go of it not too long ago, both are quickly making up lost dividend ground.

Outside of these specific picks, Goldman suggests much of the potential for dividend increases rests in technology, financial, and consumer stocks.

I’ve already made a case for the technology side, with Microsoft (MSFT), Cisco (CSCO), and Intel (INTC) at the head of that class. Also consider Apple (AAPL), which recently telegraphed a big dividend push for the future.

On the financial front, you need look no further than Warren Buffett for some advice. Berkshire Hathaway (BRK.A, BRK.B) holds its largest investment stake in Wells Fargo (WFC) — with a nearly 3% yield that’s the envy of its largest sectormates, WFC is a great place to start.

Our list of Dependable Dividend Stocks is chock full of consumer names, though the sector is looking a bit frothy. There are a few smaller plays, though, such as egg producer Cal-Maine Foods (CALM), which yields 2.8% while trading at less than 12 times earnings, and soda-maker Dr Pepper Snapple Group (DPS), which yields north of 3% with a P/E of 16.

So fight the fear (and the tape, too) and put your toe in the pool. If the dividend potential espoused by Goldman Sachs becomes reality, your cash will be put to good work in many of these stocks.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long MSFT, AAPL and GE.


Article printed from InvestorPlace Media, https://investorplace.com/2013/05/dividends-will-power-your-retirement-into-2015-msft-intc-csco-cl-pog-t/.

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