Goldman Says These Dividend Stocks Will Do Well Even With the Fed Hiking Rates

  • Goldman basket of dividend growth stocks has surged since July
  • Sees those boosting payouts as good bets amid rising rates

Rising interest rates are usually the kill shot for dividend stocks. But there’s a category of high-yielding equities that have ducked it.

It’s companies with big dividends that are also projected to raise them, according to data compiled by Bloomberg and Goldman Sachs Group Inc. Such stocks have surged more than 30 percent since the start of July, beating the S&P 500 Index by the most in eight years over any comparable period.

Flows into the iShares Core Dividend Growth ETF, which tracks companies growing dividend yields, have totaled $774 million since the start of July, including net inflows of $312 million in 2017 alone. Shares outstanding in the ETF reached a record on March 16.

Goldman isn’t as bullish on the prospects of companies that rely on share buybacks. “Pure yield strategies, such as buybacks, are at risk during periods of rising interest rates,” David Kostin, Goldman’s chief U.S. equity strategist, wrote in a client note. “We prefer firms that are growing dividends as they offer investors both yield and growth.”

The Goldman Sachs index designed to track companies that are raising dividends fell 1.2 percent at 2:18 p.m. in New York.

Here are more details on the index:

  • Goldman Sachs Dividend Growth Basket contains 50 stocks with a median expected 2017 dividend yield of 2.6%; the firm expects they’ll raise their dividends by an average of 12% in 2017
    • To compare, the median stock in the S&P 500 has a 1.9% expected 2017 dividend yield and median dividend growth of 6% for the year: Goldman client note dated Jan. 18
    • The basket has outperformed the S&P 500 by 10 percentage points since the start of July. That trailing spread reached 11.9 percentage points on March 15, which was the widest for any 8 1/2-month period since 2009: Bloomberg data
    • Companies in the index (as of March 17): VFC, IPG, WHR, HD, LOW, PHM, MO, RAI, ADM, CVS, MJN, VLO, PSX, MPC, TSO, LM, HBAN, KEY, MMC, MS, BEN, UNM, ABBV, PFE, AMGN, CAH, MDT, ABT, DGX, BA, NLSN, ITW, HON, IR, CSCO, XRX, HPQ, IBM, TXN, MSI, MSFT, GLW, ADP, HRS, AAPL, DOW, EXR, VZ, NEE, EIX
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