Embrace the hunt for dividends if you are keen on outperforming what could be a volatile stock market in 2022 due to the Russia-Ukraine crisis and a rising interest rate environment.
Or so says the team at Goldman Sachs.
“High dividend yield and high dividend growth stocks also typically outperform during periods of high inflation and currently trade at attractive valuations. Our sector-neutral high dividend yield factor currently trades at a 26% P/E valuation discount to the S&P 500, well below the long-term average of -12%,” said Goldman Sachs chief U.S. equity strategist David Kostin in a new note on Thursday.
The call arrives as Kostin expects S&P 500 companies to pay out richer dividends this year to appease nervous investors.
Kostin lifted his 2022 S&P 500 dividend forecast to $67 a share, projecting 10% year-on-year growth. Previously, the strategist saw 8% growth.
Some names in the S&P 500 with the most attractive dividends come from the energy sector, notably ExxonMobil and Chevron. Energy stocks could be doubly attractive for investors as the stock prices get a boost from rising prices for crude oil and other commodities amids the overseas crisis.
“Investors who are concerned about equity valuations but remain confident about corporate growth should consider owning dividends outright,” Kostin adds.
To be sure, many investors have become hip to playing dividends in recent months.
The Schwab U.S. Dividend Equity ETF — which measures the performance of high dividend yielding stocks issued by U.S. companies — has only fallen 4.1% year-to-date. That has relatively outperformed the S&P 500 and Nasdaq, which have logged declines of 8% and 12%, respectively, on the year.
“That sort of value, high quality is what investors ought to focus on,” said Charles Schwab chief investment strategist Liz Ann Sonders on Yahoo Finance Live, pointing to dividend payers as a top choice right now.
