- Goldman Sachs strategist Cole Hunter is the latest Wall Street pro to tell investors to target companies with not just high dividends, but strong dividend growth.
- Experts say their potential price appreciation and rising yields are appealing, and Hunter adds that the stocks are trading at a big discount compared to the S&P 500.
- His top 13 stocks have higher dividends than the benchmark S&P 500 to begin with, and are expected to have greater dividend growth over the next three years.
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Growth is everything on Wall Street, and lately there’s more and more love for one specific type: dividend growth.
Experts are singing the praises of dividend growers of late, saying stocks with increasing cash payouts offer a great combination of potential stock price appreciation while delivering strong yields — a quality that’s hard to find when US Treasury returns are low and many other government bonds are offering negative yields.
Goldman Sachs strategist Cole Hunter says dividend growers are beating out the highest-dividend stocks this year, showing that investors are even choosing growth over higher yields. He’s just the latest to join the chorus.
Despite that chorus of praise, Hunter says the stocks are inexpensive, as Goldman’s basket of dividend growth stocks is trading at a large discount to the rest of the market, and the gap is at one of its highest levels in 13 years.
“The Dividend Growth basket has lagged S&P 500 by 3 pp YTD (15% vs. 18%) and now trades at nearly the largest discount to the median S&P 500 stock since 2006 (11x vs. 18x),” he said.
Hunter is just the latest to say dividend growers have a special appeal in the current market.
“If a company is consistently growing that dividend, it signals to me that they have conviction or confidence that they’re going to be able to continue to meet that dividend payment,” said Michael Arone, chief investment strategist for the US SPDR business of State Street Global Advisors.
For that reason, those rising payments can feed back into the stock prices and contribute to future gains, according to JPMorgan Asset Management global mak ret strategist Samantha Azzarello.
Society Generale cross asset strategist Sophie Huyhn also endorses those stocks, adding that the trend benefits US stocks because the S&P 500 index now has a higher yield than the 10-year Treasury note.
Hunter has pulled together a group of stocks that are expected to have both strong dividend yields in 2020 and steady dividend growth over the next three years. The stocks on his list are projected to grow their dividends at almost twice the rate of the broader S&P 500 index.
Here are the 13 stocks that Hunter estimates will have the strongest cash return on cash invested based on those criteria. They’re ranked in increasing order of 2021 estimated cash return on cash invested.