While the ongoing Russia-Ukraine saga stays in the headlines, the item that Wall Street is still the most focused on is the raging inflation that continues to push higher. The January and February readings for both the consumer and producer price indexes came in white hot. While some feel that we could be close to a peak in the highest inflation numbers in 40 years, citing solid retail sales, among other items, others feel that the peak may not hit until the summer or even later in the fall.
If there is any data set that can stir arguments among economists it is probably consumer and producer price index numbers, and with good reason. Rising consumer and producer prices can signal the start of an inflationary period for an economy, and even moderate inflation can rapidly erode purchasing power and can create uncertainty as businesses have more difficulty estimating future costs.
With the bond market seeing an inversion between the five-year and 10-year notes, many see a recession and stagflation on the way. So we screened the Goldman Sachs Conviction List of top stock ideas looking for companies that pay among the biggest dividends and offer a degree of safety in a volatile climate on Wall Street. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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AIG
If any industry is recession and inflation proof, it is insurance, and this market leader is a very solid long-term idea. American International Group Inc. (NYSE: AIG | AIG Price Prediction) offers insurance products for commercial, institutional and individual customers in North America and internationally.
The General Insurance segment provides general liability, environmental, commercial automobile liability, workers’ compensation, casualty and crisis management insurance products; commercial, industrial and energy-related property insurance; and aerospace, political risk, trade credit, portfolio solutions, crop and marine insurance.
AIG also provides professional liability insurance products for a range of businesses and risks, including directors and officers, mergers and acquisitions, fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions insurance. In addition, it offers personal auto and property insurance, including homeowners, umbrella, yacht, fine art and collections; voluntary and sponsor-paid personal accident; supplemental health products; extended warranty insurance products; and travel insurance products.
The Life and Retirement segment offers variable annuities, index and fixed annuities and retail mutual funds. It also offers financial planning and advisory services; record-keeping, plan administrative and compliance services; and term life and universal life insurance. The company provides stable value wrap products and structured settlement and pension risk transfer annuities, as well as corporate- and bank-owned life insurance and guaranteed investment contracts.
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Shareholders receive a 2.02% dividend. The Goldman Sachs target price for American International Group stock is $115. Analysts have a consensus target of $67.54, and shares closed trading on Wednesday at $63.49.
Bank of America
The company posted very solid fourth-quarter results, and interest rate increases are welcomed by banks. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
The bank has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Investors may recall that Warren Buffett owns a stunning 1.1 billion shares of this bank.
Shareholders receive a 1.95% dividend. Goldman Sachs has a $53 target price, and the consensus target is $51.12. Bank of America stock closed on Wednesday at $43.
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NextEra Energy Partners
This utility is located in one of the fastest-growing states in the country and is a big ESG (environmental, social, governance) favorite. Next Era Energy Partners L.P. (NYSE: NEP) acquires, owns and manages contracted clean energy projects in the United States. Its portfolio of contracted renewable generation assets consists of wind and solar projects, as well as contracted natural gas pipeline assets.
The company owns roughly 6.5 gigawatts of utility-scale wind capacity and 1.4 gigawatts of utility-scale and distributed generation solar capacity in North America as of mid-2021. NextEra also owns an interest in a network of natural gas pipelines in Texas. All of that company’s assets have long-term contracts with an average remaining contractual life of 14 years across the portfolio. NextEra Energy owns 57.2% of NextEra Energy Partners common units as of the end of 2020, with the remaining ownership interest publicly traded.
Shareholders receive a 3.20% dividend. Goldman Sachs has set a $102 target price, while the consensus target on NextEra Energy Partners stock is just $88.44. Wednesday’s final trade was for $84.15, well over 2% higher on the day.
Phillips 66
This extremely diversified energy company has a long and successful operating history. 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, Phillips 66 Partners.
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 master limited partnership assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.
After stellar results for the fourth quarter were posted, the analysts said this:
Phillips 66 remains our top idea within our Refining coverage, where we continue to see headroom for incremental capital returns this year, are constructive on a positive rate of change at Refining in 2022, and continue to see attractive non-refining value in Midstream, Marketing, and Chemicals.
Investors in Phillips 66 stock receive a 4.21% dividend. The $99 Goldman Sachs price target compares to the $99.71 consensus target. The shares closed at $87.44, up close to 5% on Wednesday.
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Realty Income
This is an ideal stock for growth and income investors looking for a safer, inflation-busting idea. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company’s monthly dividends are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants.
To date, the company has declared 608 consecutive common stock monthly dividends throughout its 52-year operating history and increased the dividend 109 times since its public listing in 1994. It is a top real estate member of the S&P 500 Dividend Aristocrats index.
Investors receive a 4.22% distribution. The Realty Income stock price target at Goldman Sachs is $87. The $77.25 consensus target is closer to the $70.28 close on Wednesday.
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All five of these top companies offer growth and income investors solid and dependable ways to stay invested in equities while playing some defense in a market that has rallied recently but may be poised for another big leg down when May rolls around. Rising interest rates and inflation are not huge concerns for any of them at the margin, and the defensive qualities they share make sense in these turbulent times.
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