Investing

Dividend Lovers Bet Big on 6 Goldman Sachs Top Conviction List Picks for 2023

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The rally to start 2023 has been a pleasant surprise for investors who were battered in 2022. However, the strong move to the upside we saw over the past seven weeks looks like it is stalling and it may be time for a move to safer ground. One of the best strategies for investors now may be to move from riskier assets to dividend-paying stocks that can hold their ground should another big move lower be on the way. If Tuesday’s trading was any indication, we could be on our way.
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One thing for sure is that with the looming storm clouds on the horizon, and the potential for as many as three more interest rate increases, many strategists on Wall Street feel we will be fortunate to have high single-digit gains for the balance of 2023. We could very well have a 20% or bigger sell-off added as well.

We screened the Goldman Sachs Conviction List of top stock picks, looking for dividend-paying blue chips that worried investors can look at now. The following six top stocks hit our screens, all of which are of course rated Buy. It is important to remember though that no single analyst report should be used as a sole basis for any buying or selling decision.

Blue Owl Capital

Goldman Sachs team is quite positive on this asset management company, as the stock is on the firm’s Conviction List of top stock picks. Blue Owl Capital Inc. (NYSE: OWL) offers permanent capital base solutions that enable it to offer a holistic platform to middle market companies, large alternative asset managers and corporate real estate owners and tenants.

The company provides direct lending products that offer private credit products comprising diversified, technology, first lien and opportunistic lending to middle-market companies. Its GP capital solutions products offer capital solutions, including GP minority equity investments, GP debt financing and professional sports minority investments to large private capital managers. Its real estate products are focused on structuring sale-leaseback transactions, which includes triple net leases.

Blue Owl Capital offers its solutions through permanent capital vehicles, as well as long-dated private funds.

Investors receive a 3.34% dividend. The Goldman Sachs price target on the shares is $16.75, while the consensus target is just $12.38. Tuesday’s closing share price of $12.73 was down close to 6% on the day.

Citizens Financial

This top value stock in the financial sector is offering a very solid entry point. Citizens Financial Group Inc. (NYSE: CFG) operates approximately 2,700 ATMs and 1,000 branches in 11 states in the New England, Mid-Atlantic and Midwest regions, as well as through online, telephone and mobile banking services, and it maintains approximately 130 retail and commercial non-branch offices.

Citizens Financial operates in two segments. The Consumer Banking segment offers traditional banking products and services, including checking and savings accounts, home and education loans, credit cards, business loans, mortgage and home equity lending and unsecured product finance and personal loans, as well as wealth management and investment services to retail customers and small businesses. This segment also provides indirect auto finance for new and used vehicles through auto dealerships.
Citizens Financial’s Commercial Banking segment offers various financial products and solutions, such as loans and leasing, trade finance, deposit and treasury management, cash management, and foreign exchange and interest rate risk management solutions. It also provides loan syndications, corporate finance, merger and acquisition, and debt and equity capital markets capabilities.

Shareholders receive a 3.89% dividend. Goldman Sachs has set its target price on Citizens Financial stock at $49. The consensus target is $47.32, and shares closed on Tuesday at $41.95.
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Merck

This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) operates as a health care company worldwide. It operates through the following two segments.

The Pharmaceutical segment offers human health pharmaceutical products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular and diabetes, as well as vaccine products, such as preventive pediatric, adolescent and adult vaccines.

The Animal Health segment discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as digitally connected identification, traceability and monitoring products.

Merck serves drug wholesalers and retailers, hospitals and government agencies; managed health care providers, such as health maintenance organizations, pharmacy benefit managers and other institutions; and physicians and physician distributors, veterinarians and animal producers. The company has collaborations with AstraZeneca, Bayer, Eisai, Ridgeback Biotherapeutics and Gilead Sciences.

Merck stock comes with a 2.67% dividend, and it is the top health care play on the Goldman Sachs Conviction List. The firm’s $120 target price compares with the $118.09 consensus target and Tuesday’s closing print of $109.07.

PepsiCo

This top consumer staples company will be supplying the goods for March Madness parties and summer picnics. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.

The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as Pearl Milling mixes and syrups, Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes.

Its North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.

The dividend yield here is 2.61%. Goldman Sachs team has a $190 price target, and the consensus target is $189.50. PepsiCo stock closed on Tuesday at $176.18.

Phillips 66

This extremely diversified energy company has a long and successful operating history, and it is a longtime Goldman Sachs Conviction List member. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership (MLP), Phillips 66 Partners.
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The company benefits from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that are not ideal MLP assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.

Phillips 66 is the top idea within refining coverage at Goldman Sachs, which continues to see headroom for incremental capital returns this year. The analysts are constructive on a positive rate of change at Refining and continue to see attractive non-refining value in the other segments.

Shareholders receive a 4.22% dividend. The Goldman Sachs price target is $125. Phillips 66 stock has a consensus target of $124.08, and shares ended Tuesday trading at $99.65.

Pioneer Natural Resources

Many Wall Street analysts love this stock as a pure crude oil play, and the company also employs a variable dividend strategy. Pioneer Natural Resources Co. (NYSE: PXD) operates as an independent oil and gas exploration and production company in the United States.

The company explores for, develops and produces oil, natural gas liquids (NGLs) and natural gas. It has operations in the Midland Basin in West Texas. As of December 31, 2021, the company had proved undeveloped reserves and proved developed non-producing reserves of 130 million barrels of oil, 92 million barrels of NGLs and 462 billion cubic feet of gas, and it owned interests in 11 gas processing plants.

Pioneer production services are supported by 100 well-servicing rigs, more than 100 cased-hole, open-hole and offshore wireline units, and a range of advanced coiled tubing units.

The company is a huge player in the Permian basin and the Eagle Ford in Texas, and it owns more than 20,000 locations in the world’s second-largest oil reservoir in the Midland Basin. With a stellar balance sheet, the company is poised to remain a top player in the Permian, as it expects to deliver solid production growth going forward.

Investors receive a 12.17% dividend, but remember that it may vary from quarter to quarter. Pioneer Natural Resources stock has a $263 target price at Goldman Sachs. The higher consensus target is $272.35, but Tuesday’s close was at $205.94 a share.


These more defensive companies can continue to thrive if we slip into a recession and if the market goes back into sell-off mode. They should be able to hold their own if the risk-off contingent returns in a big way. All are among the leaders in their respective sectors, and they should continue paying their dependable dividends.

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