Goldman Sachs Says Buy High-Dividend Stocks That Help Counter Inflation: 6 Top Picks

We have always championed dividend stocks at 24/7 Wall St., especially those with higher payouts and growth rates. After years of a low interest rate environment, many investors have turned to equities, not only for the growth potential but also for solid and dependable dividends that help to provide an income stream. This is total return, which is one of the most powerful investment strategies going.

In a new research report, Goldman Sachs analysts share our long-term conviction regarding dividend stocks. They have presented some fascinating data regarding the relationship of stocks and rising inflation, noting that dividend growth has remained more resilient than share 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 registered above 6%, like it has recently. During the same periods, while real dividend growth has been negative or flat on an absolute basis, it has far outpaced equity returns. Our economists expect year-over-year headline CPI inflation to gradually decline from its first quarter rate of 7.7% and to settle near 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 greater than real price returns.

It also noted the stunning difference ability of high dividend yield and high dividend growth stocks that also outperform in periods 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 headline consumer price index (CPI) registered between 6% and 7%, which describes our economists’ forecast for 2022. Similarly, a strategy of owning the companies with the highest trailing 12-month dividend growth has outperformed the broader market, particularly when CPI was above 6%.

We screened the Goldman Sachs Dividend Growth basket, which contains a sector-neutral list of 50 S&P 500 stocks with a blend of high dividend yield and strong forecast dividend growth, and found six top ideas for investors worried about inflation and a very 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 a sole basis for any buying or selling decision.

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