Ever since the inverted yield curve returned once again to scare the markets, investors have wondered if a downturn is on the horizon, where they should be putting their money.
While traditional safe havens like gold and precious metals have long been a favorite, there are some types of equities that are decent investments when the markets turn sour. An analyst at Wall Street’s top investment bank just gave his recommendation for what investors should be doing right now and which specific companies to consider.
Goldman Sachs analyst David Kostin commented that on the current market situation, saying that investors should seek out dividend stocks over growth stocks in the months and years to come. Instead of going to low-yielding bonds, dividend stocks can give you the same amount of security while only marginally reducing ones gains. “With the 10-year Treasury yield at just 1.5% and the Fed likely to cut two more times this year, investors should look for opportunities in dividend stocks.” This would give investors an alternative to lower bond yields as well as cushion them against lower share price increases. Goldman has a number of these types of stocks they recommend to clients, with most of them being large or mega-cap stocks with long, established histories.
Kostin added that the market is pricing at a very pessimistic level for dividend payouts in the coming years. At the same time, he goes on to say that the valuation gap between high and low dividend-yielding stocks is near the widest it has ever been in over 40 years.
However, Goldman Sachs predicts that dividend growth will rise to 3.5 percent annually during the next ten years, making dividend stocks especially attractive.
The investment bank has a dividend growth basket of stocks that it recommends to clients, with the average stock in its basket having a dividend of 3.8 percent rather than the 2.1 percent average for the S&P 500.
The three top companies on the list are AT&T (NYSE: T), AbbVie (NYSE: ABBV), and Kohls (NYSE: KSS), all large companies with 2019 dividends of 5.9, 6.8, and 6.1 percent respectively. Other well-performing dividend stocks in Goldman’s stock basket include Seagate Technology (NASDAQ: STX) with a 5.6 percent dividend and Simon Property Group (NYSE: SPG) with a 5.6 percent dividend.
High dividend-yielding equities are seen as a strong replacement candidate for bonds. While the stock market has tumbled in certain years, almost every ten-year period has seen the S&P recover its losses or record a gain. When one invests in high-dividend companies that operate in defensive sectors, which are resilient to recessions, it becomes an effective strategy to hedge against market reversals.
