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.
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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.

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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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This stock may be offering one of the best value propositions among the Goldman Sachs picks and is utilizing the variable dividend strategy. Devon Energy Corp. (NYSE: DVN | DVN Price Prediction) is an independent energy company that primarily engages in the exploration, development and production of oil, natural gas and natural gas liquids (NGLs) in the United States and Canada. It operates approximately 19,000 wells.
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The company also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensate through its natural gas pipelines, plants and treatment facilities.

Production is weighted toward crude oil while growth opportunities are liquids focused, anchored by the Delaware Basin, SCOOP/STACK, Eagle Ford Shale, Canadian Oil Sands, and the Barnett. Devon also owns equity in the publicly traded midstream master limited partnership EnLink.

Devon Energy stock investors receive a 6.80% dividend. The Goldman Sachs rating is Neutral with a $52 target price. The consensus is $58.05, and shares closed above both levels on Thursday at $58.85.
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Gilead Sciences

This stock is trading a very reasonable 9.35 times estimated 2022 earnings and has big-time upside potential. Gilead Sciences Inc. (NASDAQ: GILD) is a research-based biopharmaceutical company that discovers, develops and commercializes medicines in the areas of unmet medical need in the United States, Europe and elsewhere.

The company provides Biktarvy, Genvoya, Descovy, Odefsey, Truvada, Complera/Eviplera, Stribild and Atripla products for the treatment of human immunodeficiency virus (HIV) infection; Veklury, an injection for intravenous use, for the treatment of coronavirus disease 2019; and Epclusa, Harvoni, Vosevi, Vemlidy and Viread for the treatment of liver diseases. It also offers Yescarta, Tecartus, Trodelvy and Zydelig products for the treatment of hematology, oncology and cell therapy patients.

In addition, Gilead provides Letairis, an oral formulation for the treatment of pulmonary arterial hypertension; Ranexa, an oral formulation for the treatment of chronic angina; and AmBisome, a liposomal formulation for the treatment of serious invasive fungal infections.

Investors take a 4.73% dividend to the bank every quarter. Goldman Sachs has a Neutral rating and a $78 price target on Gilead Sciences stock. The consensus target is $74.32, and Thursday’s closing print was $61.71.

This smaller cap bank could be an outstanding addition for more aggressive investors, especially after the big boys posted solid results last week. Huntington Bancshares Inc. (NASDAQ: HBAN) operates as a holding company for the Huntington National Bank, which provides commercial, small business, consumer and mortgage banking services.
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The company’s Retail and Business Banking segment offers financial products and services, including checking accounts, savings accounts, money market accounts, certificates of deposit, consumer loans and small business loans, as well as investments, insurance, interest rate risk protection and foreign exchange and treasury management services.

The Commercial Banking segment provides corporate risk management and institutional sales, trading, and underwriting services; commercial property and casualty, employee benefits, personal lines, life and disability, and specialty lines of insurance; and brokerage and agency services for residential and commercial title insurance, as well as excess and surplus product lines of insurance. Huntington also offers automotive and commercial real estate financing and a regional private bank and private client business.

Shareholders receive a 4.11% dividend. A $17 target price accompanies the Goldman Sachs Buy rating. The consensus target for Huntington Bancshares stock is $17.91, and the shares closed on Thursday at $15.08.
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IBM

This blue-chip giant still offers investors a very solid entry point. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.

The company integrates its hardware products with its software and services offerings to provide high-value solutions. Analysts have cited the company’s potential in the public cloud as a reason for their positive outlook going forward.

The company posted a very solid fourth quarter. The cloud proved to be big in the earnings reports, as did Red Hat, the software giant the firm bought in 2019. Red Hat’s open hybrid cloud technologies are now paired with the unmatched scale and depth of IBM’s innovation and industry expertise and sales leadership in more than 175 countries.

The dividend yield is 5.21%. The $144 Goldman Sachs target price, with a Neutral rating, compares with the $143.47 consensus target. Thursday’s closing print for IBM stock was $125.93 a share.

Commercial real estate has picked up again in a big way, and Simon Property Group Inc. (NYSE: SPG) is a very strong company for investors looking to play the industry. It invests in real estate markets across the globe. It engages in investment, ownership, management and development of properties. The company primarily invests in regional malls, premium outlets, mills and community/lifestyle centers to create its portfolio.
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Through its subsidiary partnership, Simon Property owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European real estate investment trust with over 260 shopping centers in 13 countries.

Shareholders receive a 4.73% distribution. The Simon Property Group stock price target at Goldman Sachs is $186 and its rating is Buy. The consensus target is $173.22. The shares closed at $139.41 on Thursday.
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Verizon

This top telecommunications stock offers tremendous value at current levels, and Berkshire Hathaway owns 158.8 million shares. Verizon Communications Inc. (NYSE: VZ) is one of the largest U.S. telecom companies. It provides wireless and wireline service to retail, enterprise and wholesale customers.

Verizon’s wireless network serves approximately 120 million mobile connections with 115 million postpaid subscribers. Its wireline business has undergone a period of secular decline due to wireless substitution and cable competition.

Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.

Investors are paid a 4.79% dividend. Goldman Sachs has a Buy rating and $61 target price. The consensus price target is $60.32, and Verizon Communications stock closed most recently at $54.66.
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These six solid companies all deliver dependable dividends. The spike in energy costs is going to keep inflation running hot, and inflation pressures may not start to decline until the situation in Ukraine is settled. One thing is for sure. With the potential for the market to have another big leg down and inflation in the picture probably for the rest of 2022, the strategy and data backing up high-dividend stocks and dividend growth shares likely will continue to track at the historical levels.