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Uncovering Income: Dividend Stocks With Strong Yields

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Uncovering Income: Dividend Stocks with Strong Yields

Amid the current market volatility, attractive income-generating investments can be hard to find.

Treasury bond yields hover near record lows, and U.S. companies face restrictions on issuing dividends if they accept COVID-19 stimulus funds. Moreover, Goldman Sachs estimates dividends for S&P 500 stocks will decline by 25% this year.

Which stocks can investors turn to for stable distributions and relatively high dividend yields? Today’s visualization shows 35 stocks that may meet this criteria, leveraging Goldman Sachs data as published by Forbes.

The Dividend Stocks to Watch

To compile the list, Goldman Sachs identified stocks from the Russell 1000 index that met a number of requirements:

  • A minimum annualized dividend yield of 3%
  • An S&P credit rating of at least BBB+
  • Ample cash on hand
  • Strong balance sheets
  • ”Reasonable” payout ratios
  • At least average performance since the market peak

Dividend yields, which measure dividend income in relation to the share price, were initially calculated March 27. We have updated them as of market close on April 8. Here’s the full breakdown, sorted from highest to lowest dividend yield:

RankCompanyTickerAnnual Dividend YieldSector
1CenterPoint Energy, Inc.NYSE: CNP6.90%Utilities
2Wells Fargo & CompanyNYSE: WFC6.74%Financials
3People's United Financial, Inc.NASDAQGS: PBCT6.34%Financials
4Franklin Resources, Inc.NYSE: BEN6.28%Financials
5Regency CentersNASDAQGS: REG5.82%Real estate
6Truist FinancialNYSE: TFC5.50%Financials
7International Business MachinesNYSE: IBM5.43%Tech
8Omnicom Group Inc.NYSE: OMC4.76%Communication services
9U.S. BancorpNYSE: USB4.71%Financials
10Raytheon Technologies (merger of Raytheon and United Tech.)NYSE: RTX4.69%Industrials
11NetApp, Inc.NASDAQGS: NTAP4.69%Information Technology
12The PNC Financial Services Group, Inc.NYSE: PNC4.62%Financials
13Eaton Vance Corp.NYSE: EV4.34%Financials
14Nucor CorporationNYSE: NUE4.12%Materials
15United Parcel Service, Inc.NYSE: UPS4.09%Industrials
16M&T Bank CorporationNYSE: MTB4.09%Financials
17Exelon CorporationNASDAQGS: EXC4.07%Utilities
18Archer-Daniels-Midland CompanyNYSE: ADM3.95%Consumer staples
193M Company NYSE: MMM3.95%Industrials
20Emerson Electric Co.NYSE: EMR3.84%Industrials
21Sysco Corp.NYSE: SYY3.81%Consumer staples
22Mid-America Apartment CommunitiesNYSE: MAA3.61%Real Estate
23Essex Property Trust, Inc.NYSE: ESS3.55%Real Estate
24MDU Resources GroupNYSE: MDU3.53%Utilities
25Cummins Inc.NYSE: CMI3.51%Industrials
26Sonoco Products Co.NYSE: SON3.50%Materials
27Cisco Systems, Inc.NASDAQGS: CSCO3.45%Information Technology
28American Electric Power Company, Inc.NYSE: AEP3.36%Utilities
29The Hartford Financial Services Group, Inc.NYSE: HIG3.36%Financials
30NiSource Inc.NYSE: NI3.30%Utilities
31Caterpillar Inc.NYSE: CAT3.23%Industrials
32Everest Re Group, Ltd.NYSE: RE3.13%Financials
33Bristol-Myers Squibb CompanyNYSE: BMY3.09%Health care, pharmaceuticals
34The Home Depot, Inc.NYSE: HD3.08%Consumer discretionary
35Bank of America CorporationNYSE: BAC3.07%Financials

Note: From the original list, 5 stocks have been excluded as they no longer meet the 3% annualized yield threshold.

Centerpoint Energy, an electric and natural gas utility company, is at the top of the list. Since utility stocks are generally considered to be recession-resistant, investors may benefit from both the company’s yield and its defensive qualities.

Financials are the most-represented sector, with 11 companies on the list. Although regulators have pressured European banks to suspend dividend payments, U.S. banks will likely be able to continue their distributions. Top banking executives have argued they have sufficient capital to weather the COVID-19 crisis, and that halting payments would be “destabilizing to investors.”

There are also a number of well-known names on the list, including Home Depot, IBM, and 3M. The latter is the largest maker of respirator masks worldwide, and has been providing critical supplies to the U.S., Canada, and Latin America.

Caution: Volatility Ahead

As the pandemic’s financial impact continues, it’s likely many companies will delay or suspend their dividends. To avoid falling into “yield traps”—a trap in which an attractive yield could be due to a fundamental business problem—investors can screen for the qualities laid out above.

A strong balance sheet, good credit rating, and average or better performance since the downturn can all help point towards stability.

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Just 20 Stocks Have Driven S&P 500 Returns So Far in 2023

From Apple to NVIDIA, megacap stocks are fueling S&P 500 returns. The majority of these firms are also investing heavily in AI.

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Just 20 Stocks Have Driven Most of S&P 500 Returns

Just 20 firms—mainly AI-related stocks—are propping up the S&P 500 and driving it into positive territory, signaling growing risk in the market.

The above graphic from Truman Du shows which stocks are making up the vast majority of S&P 500 returns amid AI market euphoria and broader market headwinds.

Big Tech Stock Rally

Tech and AI stocks have soared as ChatGPT became a household name in 2023.

The below table shows data from last month, highlighting that just a small collection of companies drove most of the action on the U.S. benchmark index.

Company RankNameContribution to S&P 500 ReturnAverage Weight
1Apple1.49%6.61%
2Microsoft1.15%5.72%
3NVIDIA 1.00%1.62%
4Meta0.66%1.15%
5Amazon0.51%2.56%
6Tesla0.50%1.39%
7Alphabet (Class A Shares)0.34%1.72%
8Alphabet (Class C Shares)0.31%1.53%
9Salesforce0.19%0.51%
10Advanced Micro Devices0.16%0.39%
11General Electric0.10%0.28%
12Visa0.10%1.08%
13Broadcom0.09%0.73%
14Intel0.09%0.35%
15Walt Disney0.08%0.55%
16Booking Holdings0.07%0.28%
17Exxon Mobil0.06%1.37%
18Netflix0.06%0.44%
19Oracle0.06%0.40%
20Adobe0.06%0.49%
Top 20 Companies7.05%29.17%
S&P 500*7.55%100.00%

*Based on the Vanguard S&P 500 ETF as of April 11, 2023. Source: Vanguard S&P500 ETF, Bloomberg.

Microsoft invested $10 billion into OpenAI, the creators of ChatGPT. It has also integrated generative AI into its search engine Bing. This large language model is designed specifically to make search capabilities faster, generate text, and perform other automations.

Also of interest is NVIDIA, which is the most valuable chipmaker in America. It sells $10,000 chips called A100s that allow machine learning models to run. These models perform multiple tasks simultaneously to develop neural networks and train AI systems, including OpenAI’s ChatGPT. Companies that are developing AI-related services, such as chatbots or image generation, may use up to thousands of these chips.

Despite being the world’s most valuable company and a key driver of returns, Apple is an outlier among tech giants with no major projects announced in AI (so far).

Implications of Market Divergence

The problem with the strong gains seen in a few select AI-related stocks is that it clouds wider stock market performance.

Without the AI-led rally, the S&P 500 would be returning -1.4%. as of May 17, 2023.

This form of steep divergence, known as market breadth, often signals higher risk in the market.

When more companies experience positive returns it is less risky than a small handful seeing the majority of the gains. Today market breadth is very narrow, and these companies make up over 29% of the entire index’s market capitalization.

How long AI-related firms mask the broader performance of the S&P 500 remains to be seen. A growing number of market pressures, from higher interest rates to banking uncertainty could add further challenges.

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