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Goldman Sachs names 40 high-yield stocks with safe dividends during crisis

Goldman Sachs named 40 Russell 1000 stocks with high yields and safe dividends that may appeal to income-minded investors during a turbulent time for stocks as investors digest the probable economic cost of the coronavirus pandemic.

The median annual dividend yield of the stocks chosen by Goldman Sachs analysts was 4% as of March 27, compared with 2% for the Russell 1000 index, which represents 92% of the total market cap of U.S.-listed stocks. The highest-yielding stocks on that date were CenterPoint Energy Inc. at 7.1% and Wells Fargo & Co. at 6.7%.

Of the stocks chosen, 13 were financials companies, seven were industrials and five were utilities, with three each from real estate, information technology and healthcare. There was just one company in communication services Omnicom Group Inc., with a 5% dividend yield and one in consumer discretionary, Home Depot Inc. with a 3.1% yield. There were no energy companies that met Goldman's screening criteria.

"With 10-year US Treasury yields at 0.8%, income-seeking investors should consider stocks with both high dividend yields and the capacity to maintain the distributions," said Goldman Sachs analysts led by Cole Hunter, vice president, U.S. portfolio strategy. "The 40 stocks have high dividend yields, ample cash, healthy balance sheets, and reasonable payout ratios."

S&P 500 forecast

Goldman forecasts that S&P 500 dividends will fall by 25% in 2020, to an aggregate $44 per share. After rising by 9% during the first quarter, they will drop by 38% during the remaining nine months of the year, the analysts predict. Dividends will then grow by 3% in 2021 and a further 12% in 2022, they said.

Annual dividend growth for the S&P 500 over the coming decade will average 3.6%, the slowest in post-war history, the bank said. However, that is still bullish compared with the 0.7% implied by the swaps market.

"We believe investors are overly pessimistic with respect to the magnitude of the near-term dividend decline and the subsequent pace of recovery," it said.

Financials dominate

The 13 financials companies on Goldman's list of Russell 1000 companies with the most stable dividends are Wells Fargo, Franklin Resources Inc., People's United Financial Inc., Truist Financial Corp., U.S. Bancorp, Eaton Vance Corp., PNC Financial Services Group Inc., M&T Bank Corp., Hartford Financial Services Group Inc., Bank of America Corp., Everest Re Group Ltd., Aflac Inc. and Cincinnati Financial Corp.

The industrials companies are 3M Co., Emerson Electric Co., United Parcel Service Inc., Caterpillar Inc., C.H. Robinson Worldwide Inc., Cummins Inc. and United Technologies Corp. The utilities are CenterPoint Energy, Exelon Corp., MDU Resources Group Inc., NiSource Inc. and American Electric Power Co. Inc.

Information technology companies on the list were International Business Machines Corp., NetApp Inc. and Cisco Systems Inc. Healthcare companies were Bristol-Myers Squibb Co., Merck & Co. Inc. and Johnson & Johnson. Companies from the real estate sector were Regency Centers Corp., Mid-America Apartment Communities Inc. and Essex Property Trust Inc.

The list is rounded off by materials companies Nucor Corp. and Sonoco Products Co., communication services company Omnicom, consumer discretionary company Home Depot, and consumer staples companies Archer-Daniels-Midland Co. and Sysco Corp.