Last week’s final reading of a negative 1.5% gross domestic product for the first quarter (the first such print since the second quarter of 2020) was even worse than the preliminary reading, and it is a good sign that things could get worse before they get better. The highest inflation in 41 years, the ongoing war between Russia and Ukraine, supply-chain issues and a host of additional woes continue to pressure the equity markets. Many investors are getting nervous, especially with the Nasdaq already dipping in and out of bear market status, and the S&P 500 hitting the 20% down level at one point.
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The late-week rally was a relief to many investors, and it may indeed have some legs left, but the reality is that inflation is not going away soon, and it is possible we could see a sharp reversal of the recent buying. In addition, if second-quarter GDP does not come in positive, then we are in a recession already.

We decided to screen the Goldman Sachs Conviction List, looking for ideas for concerned investors that come with the biggest dividends of the group. The reason that these dividend-paying stocks make sense now is that they are the very best ideas from one of the top investment banks, not just on Wall Street, but around the world. They are just the ticket for providing investors solid total return.

It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Bank of America

This company posted very solid first-quarter results. 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.

This 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.

Banks, almost regardless of size, are a solid idea, as the potential for higher net interest income on portfolio loans to homeowners, farmers and small business owners is one of the strongest tailwinds in a rising-rate environment. Banks can achieve better returns on their cash balances while achieving higher rates of returns from customers who come in for loans.

Bank of America stock investors receive a 2.27% dividend. The Goldman Sachs target price is $47, and the consensus target is $48.28. Friday’s closing share price was $37.02.

This is another top stock in the financial sector that 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.
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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.

The 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 3.82% dividend. Goldman Sachs has a $60 target price on Citizens Financial stock. The consensus target is just $53.28, and shares closed on Friday at $40.87.

DTE Energy

With the potential for very warm summer weather, this company may look to extend gains into the second half of 2022. DTE Energy Co. (NYSE: DTE) is the largest utility in Michigan. Its largest operating units are DTE Electric, an electric utility serving 2.2 million customers in southeastern Michigan, and DTE Gas, a natural gas utility serving 1.3 million customers in the state. DTE Energy also has non-utility energy businesses that focus on power and industrial projects, natural gas midstream and energy trading.

The company’s Gas segment purchases, stores, transports, distributes and sells natural gas to residential, commercial and industrial customers throughout Michigan, and it sells storage and transportation capacity. This segment has approximately 19,800 miles of distribution mains, 1,305,000 service pipelines and 1,273,000 active meters, as well as approximately 2,000 miles of transmission pipelines.

Its Gas Storage and Pipelines segment owns natural gas storage fields, lateral and gathering pipeline systems and compression and surface facilities. It also has ownership interests in interstate pipelines serving the Midwest, Ontario and northeast markets.
The company’s Power and Industrial Projects segment offers metallurgical coke; pulverized coal and petroleum coke to the steel, pulp and paper, and other industries; and power, steam and chilled water production, and wastewater treatment services, as well as supplies compressed air to industrial customers.

Shareholders receive a 2.64% dividend. The $138 Goldman Sachs price objective is less than the $140.41 consensus target. Friday’s closing price for DTE Energy stock was $134.30 a share.
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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.

Investors receive a 2.97% dividend. Goldman Sachs has set a $105 target price. Merck stock has a consensus target of $96.54, and Friday’s closing print was $93.08.

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.

Holders of NextEra Energy Partners stock receive a 4.06% dividend. The Goldman Sachs target price of $102 is well above the $86.38 consensus target. The stock closed almost 4% higher on Friday at $72.22.

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 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.

After it posted stellar results for the latest quarter, Goldman Sachs 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 are paid a very solid 3.81% dividend. The Phillips 66 stock price target at Goldman Sachs is $112. The consensus target is $106.23, and shares ended last week at $101.73 apiece.

Realty Income

This is an ideal stock for growth and income investors looking for a safer, inflation-busting idea for 2022. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income.

The company is structured as a real estate investment trust (REIT), and its monthly distributions 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 54-year operating history and increased the dividend 109 times since its public listing in 1994, and it is a member of the S&P 500 Dividend Aristocrats index.

Investors receive a 4.27% distribution. Goldman Sachs has a price objective of $86. The lower $75.88 consensus target also compares with a $69.35 per share close for Realty Income stock on Friday.

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

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