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 -9.63% 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.