We have always championed dividend-paying stocks at 24/7 Wall St., especially those with higher payouts and growth rates. After years of low interest rates, many investors have turned to equities, not only for their growth potential, but also for strong and reliable dividends that help provide an income stream. It is total return, which is one of the most powerful investment strategies.
In a new research report, Goldman Sachs analysts share our long-term belief in dividend-paying stocks. They presented fascinating data regarding the relationship between stocks and rising inflation, noting that dividend growth has remained more resilient than stock appreciation during periods of high inflation. The report said this:
Since 1940, real equity returns have turned negative on average when CPI inflation exceeded 5% and particularly when it exceeded 6%, as has happened recently. During the same periods, although real dividend growth was negative or nil in absolute terms, it far exceeded equity returns. Our economists expect headline CPI inflation year-over-year to decline gradually from its 7.7% rate in the first quarter and settle at nearly 5.0% by the end of this year. Historically, periods of inflation at these levels have been associated with real dividend growth 16 percentage points higher than real price returns.
He also noted the amazing difference-making power of high-dividend-yielding, high-dividend-growth stocks that also outperform in times of high inflation:
Since 1970, a sector-neutral strategy of owning companies with dividend yields in the highest quintile of their S&P 500 sectors has outperformed the index by 10 percentage points over a 12-month horizon when the index headline consumer price inflation (CPI) was between 6% and 7%, which describes our economists’ forecasts for 2022. Similarly, a strategy of owning the companies with the strongest dividend growth out of 12 month outperformed the broader market, especially when the CPI was above 6%.
We’ve reviewed the Goldman Sachs Dividend Growth Basket, which contains a sector-neutral list of 50 S&P 500 stocks with a mix of high dividend yield and strong expected dividend growth, and found six top ideas for investors worried about inflation and a highly volatile stock market. . Note that while these stocks are in the basket, not all are rated Buy at Goldman Sachs. And remember that no single analyst report should be used as the sole basis for any buy or sell decision.
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