Inflation and the Ukraine war are making investors nervous
Goldman Sachs sees good opportunities in dividend stocks
Ten titles recommended
So far in 2022, the stock markets have been characterized by high volatility. Investors are unsettled by the fact that US inflation is rising at an alarming rate as the economy recovers from the Corona crisis and even reached a 40-year high of 7.9 percent in February. As a reaction to this, the US monetary authorities have signaled an initial interest rate hike for March and the prospect of further interest rate hikes for the remainder of the year. Such a tighter monetary policy should not remain without consequences for the stock market, after all, higher interest rates make fixed-income investments more attractive than stocks, and they also increase companies’ borrowing costs.
Russian President Vladimir Putin is causing additional uncertainty, since his attack on Ukraine is destroying a peace order that has been in place for decades. In addition to the geopolitical aspects, the war is also likely to increase energy prices and thus further fuel inflation.
Dividend stocks interesting
Given these uncertainties, Goldman Sachs recommends that investors look to stocks that can be relied upon to pay solid dividends to their shareholders. The US investment bank points out that real equityreturns since 1940 has always been negative whenever inflation is above 5 percent. However, dividend growth could keep up to some extent in times of such high inflation. Dividend stocks are currently cheap and are trading at higher discounts than usual, so there are good buying opportunities.
“Stocks with a high dividend yield and high dividend growth usually outperform in times of high inflation and they are also currently trading at attractive valuations,” quotes “Yahoo Finance” David Kostin, the top US equity strategist at Goldman Sachs. Kostin also expects that numerous in the S&P 500 listed companies are likely to pay out a higher dividend in 2022 to appease investors for the price volatility.
Shares with high dividends offer a double advantage: Shareholders can benefit both from price increases and from high dividends. High dividends can even serve as a buffer for price losses. When choosing good dividend stocks, however, it is not just about the dividend, but rather the dividend yield. This ratio compares the annual dividend to the share price on the payout date.
Goldman Sachs recommendations
“Investors concerned about stock prices but still confident about a company’s growth should consider investing in dividend-paying stocks,” said David Kostin.
Goldman has identified ten dividend stocks that have above-average expected dividend yields, moderate payout ratios, and rapid dividend growth: IBM, PepsiCo, Gilead Sciences, Intel, Ford Motor, Verizon Communications, Lumen Technologies, Merck & Co, ExxonMobil, and Chevron. The stocks from the energy sector – ExxonMobil and Chevron – could be interesting not only because of their dividends, but also their share price could benefit from the fact that oil prices rise as a result of the crises overseas, it was said.
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