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April 4, 2020, 1:32 p.m. EDT

Here are the best bets for investors seeking income, according to Goldman Sachs

Banks should weather the storm, Goldman’s analysts reckon

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By Andrea Riquier


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Home Depot is one of Goldman Sachs’ best bets for dividends.

It’s hard times for anyone relying on income investments. The stimulus bill signed into law Friday keeps any companies that borrow from the government from paying dividends to shareholders for at least a year after the loan is repaid — even as bond yields have collapsed to to near all-time lows.

That makes it critical for investors focused on income to “consider stocks with both high dividend yields and the capacity to maintain the distributions,” Goldman Sachs strategists wrote in an analysis out Monday.

Earlier coverage: Dividend ETFs may lose out under the $2 trillion coronavirus relief bill

The provisions of the CARE Act likely exacerbate a trend of companies trying to keep as much cash on hand as possible as the economic downturn worsens. The Goldman strategists estimate dividends for S&P 500 stocks will decline 25% to $44 per share in 2020, and note 12 companies, ranging from Apache Corp . /zigman2/quotes/200648444/composite APA +4.44%   to Old Dominion Freight Line , have already reduced or suspended their shareholder payouts.

“We expect significantly more dividend cuts are likely to be announced during April in conjunction with the release of quarterly financial results,” the analysts wrote.

The Goldman team screened the Russell 1000 for companies with an annualized dividend yield greater than 3%, ample cash on hand, healthy balance sheets, and what they call “reasonable payout ratios.” Each of the stocks they identified have not under-performed the rest of the market since the peak, are rated by S&P as at least BBB+.

“The typical stock on our list has paid its dividend for 90 quarters (23 years) without reducing its distribution,” the Goldman strategists wrote. Their full list contains companies from 10 of the 11 S&P 500 sectors; energy is the only one missing. We’ve listed the top — highest-yielding — stock from each of the 10 sectors below.

Company Annual dividend yield Consecutive quarters with no dividend cut Sector
Omnicom Group Inc. /zigman2/quotes/209996569/composite OMC   5% 50 Communication services
Home Depot Inc. /zigman2/quotes/208081807/composite HD    3.1% 128 Consumer discretionary
Archer-Daniels-Midland /zigman2/quotes/203479136/composite ADM   4.3% 23 Consumer staples
Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC    6.7% 39 Financials
Bristol-Myers Squibb /zigman2/quotes/202559280/composite BMY   (tied with Merck & Co. Inc. /zigman2/quotes/209956077/composite MRK  ) 3.4% 114 Health care, pharmaceuticals
3M Co. /zigman2/quotes/205029460/composite MMM   (tied with Emerson Electric Co. /zigman2/quotes/200181610/composite EMR  ) 4.4% 156 Industrials
IBM /zigman2/quotes/203856914/composite IBM   6.0% 102 Tech
Nucor Corp. /zigman2/quotes/201889722/composite NUE   4.8% 41 Materials
Regency Centers /zigman2/quotes/202056862/composite REG   5.9% 39 Real estate
CenterPoint Energy /zigman2/quotes/206368471/composite CNP   7.1% 55 Utilties
Source: Goldman Sachs

About one-third of the stocks that wound up on Goldman’s list of 40 are financials. The strategists wrote that their bank equity research analyst colleagues had modelled stress scenarios and found that “banks are in a position to maintain dividends at or close to the current run rate.”

That’s an important caveat given the particularly precarious position for financials now. It’s not just the economic fall-out from the coronavirus pandemic that’s troubling them, but an expected wave of defaults and bankruptcies from the collapse in oil prices.

Related: American businesses are tapping their credit lines at the fastest pace ever

/zigman2/quotes/200648444/composite
US : U.S.: NYSE
$ 12.71
+0.54 +4.44%
Volume: 15.22M
May 26, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.79%
Market Cap
$4.80 billion
Rev. per Employee
$2.15M
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/zigman2/quotes/209996569/composite
US : U.S.: NYSE
$ 54.09
+2.31 +4.46%
Volume: 3.99M
May 26, 2020 4:00p
P/E Ratio
8.90
Dividend Yield
4.81%
Market Cap
$11.59 billion
Rev. per Employee
$217,190
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/zigman2/quotes/208081807/composite
US : U.S.: NYSE
$ 242.48
+0.60 +0.25%
Volume: 4.54M
May 26, 2020 4:00p
P/E Ratio
24.11
Dividend Yield
2.47%
Market Cap
$260.45 billion
Rev. per Employee
$261,993
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/zigman2/quotes/203479136/composite
US : U.S.: NYSE
$ 37.13
+1.75 +4.95%
Volume: 2.72M
May 26, 2020 4:00p
P/E Ratio
13.62
Dividend Yield
3.88%
Market Cap
$20.63 billion
Rev. per Employee
$2.03M
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/zigman2/quotes/203790192/composite
US : U.S.: NYSE
$ 26.26
+2.09 +8.65%
Volume: 57.72M
May 26, 2020 4:00p
P/E Ratio
9.27
Dividend Yield
7.77%
Market Cap
$107.67 billion
Rev. per Employee
$392,114
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/zigman2/quotes/202559280/composite
US : U.S.: NYSE
$ 60.32
-0.47 -0.77%
Volume: 18.45M
May 26, 2020 4:00p
P/E Ratio
74.56
Dividend Yield
2.98%
Market Cap
$136.49 billion
Rev. per Employee
$968,283
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/zigman2/quotes/209956077/composite
US : U.S.: NYSE
$ 77.26
+0.89 +1.17%
Volume: 18.27M
May 26, 2020 4:00p
P/E Ratio
19.54
Dividend Yield
3.16%
Market Cap
$195.01 billion
Rev. per Employee
$615,159
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/zigman2/quotes/205029460/composite
US : U.S.: NYSE
$ 152.08
+5.64 +3.85%
Volume: 4.62M
May 26, 2020 4:00p
P/E Ratio
17.85
Dividend Yield
3.87%
Market Cap
$87.48 billion
Rev. per Employee
$350,368
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/zigman2/quotes/200181610/composite
US : U.S.: NYSE
$ 59.27
+3.40 +6.09%
Volume: 3.46M
May 26, 2020 4:00p
P/E Ratio
16.90
Dividend Yield
3.37%
Market Cap
$35.41 billion
Rev. per Employee
$202,731
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/zigman2/quotes/203856914/composite
US : U.S.: NYSE
$ 121.76
+3.37 +2.85%
Volume: 5.47M
May 26, 2020 4:00p
P/E Ratio
12.06
Dividend Yield
5.35%
Market Cap
$108.11 billion
Rev. per Employee
$208,845
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/zigman2/quotes/201889722/composite
US : U.S.: NYSE
$ 41.51
+2.03 +5.14%
Volume: 1.91M
May 26, 2020 4:00p
P/E Ratio
16.16
Dividend Yield
3.88%
Market Cap
$12.50 billion
Rev. per Employee
$953,128
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/zigman2/quotes/202056862/composite
US : U.S.: Nasdaq
$ 45.12
+3.86 +9.36%
Volume: 1.54M
May 26, 2020 4:00p
P/E Ratio
61.19
Dividend Yield
5.27%
Market Cap
$7.65 billion
Rev. per Employee
$2.53M
loading...
/zigman2/quotes/206368471/composite
US : U.S.: NYSE
$ 17.49
+0.57 +3.37%
Volume: 9.08M
May 26, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
3.43%
Market Cap
$8.79 billion
Rev. per Employee
$1.31M
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Andrea Riquier reports on housing and banking from MarketWatch's New York newsroom. Follow her on Twitter @ARiquier.

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