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:

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.

BEACH Stocks: $332B in Value Washed Away

The market’s latest storm has plunged the global travel industry into uncharted territory.

Since the S&P 500 market high on February 19, 2020, market capitalizations across BEACH industries—booking, entertainment, airlines, cruises, and hotels—have tumbled. The global airline industry alone has seen $157B wiped off valuations across 116 publicly traded airlines.

Investor confidence in cruise lines has also dropped. Between Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings, over half of their market value has evaporated—equal to at least $42B in combined market capitalization.

Today’s infographic profiles the steep losses across BEACH companies. It looks at the ripple effects across individual companies and industries from the February 19 peak to date*.

Falling Off A Cliff

As the COVID-19 pandemic has spread to over 100 countries, many governments have implemented sweeping travel restrictions.

The impact across BEACH industries is far-reaching, with some valuations declining to nearly a quarter of their previous total.

For instance, the consequences on various travel bookings brands have been severe. Booking Holdings, the parent company to Booking.com, Priceline, Kayak and OpenTable, witnessed share price declines of over 35% since the peak.

Empty Stadiums

Across the entertainment industry, ticket sales for concerts, movies, and other events are falling precipitously due to cancellations or postponements.

Upwards of $5B in global film industry losses could result from the COVID-19 pandemic.

Chilling footage of the Las Vegas strip, as well as other tourist epicenters around the world, shows deserted streets as visitors opt to stay home instead.

Bracing For Impact

Meanwhile, worldwide airline revenue is estimated to fall by as much as $113B in 2020.

In under two months, the share price of Delta Airlines has fallen over 50% as the company anticipates a capacity reduction of 40%, the largest in its history.

The global airline industry—which employs over 10M people—supports $2.7T in global economic activity across an average of 12M passengers per day.

Aruba, Jamaica No More

As for the cruise line industry, global operations came to a 30-day standstill in mid-March. Over 800 COVID-19 cases and 10 deaths across three cruise ships have been discovered.

“COVID-19 on cruise ships poses a risk for rapid spread of disease, causing outbreaks in a vulnerable population, and aggressive efforts are required to contain spread.”

—CDC

Carnival, a Miami-based company, has witnessed its share price fall to around one third of its February 19 value. Similarly, Royal Caribbean Cruises, which has seen its market cap plummet almost 70%, announced that it will suspend trips until mid-May.

Occupancy Dilemma

As the hotel industry is impacted by the global outbreak, share prices have also realized a significant slump. In the U.S., an estimated $1.4B in revenue is vanishing each week. If occupancy levels fall by just 30% this year, the U.S. hotel industry could see approximately 4 million jobs wiped out.

The Baird/STR Hotel Stock Index, which serves as a benchmark for the sector’s overall health, has declined over 47% year-to-date.

Global Stimulus Response

A number of travel industries around the world are calling for stimulus packages.

On March 25, the U.S. Congress finalized a historic $2T deal, which includes $25B in grants for the airline industry. In the UK, officials are providing small businesses in hospitality and leisure grants that are worth up to $30,000 as part of its $400B bailout plan.

China, Germany, Italy, and Spain have outlined multibillion dollar proposals in response to COVID-19. Overall, at least eleven countries have announced stimulus plans along with the European Commission and the IMF.

When Will the Travel Wave Hit Again?

Amid the COVID-19 pandemic one thing is clear: the impact on the travel industry will have a marked effect on the broader economy.

Travel is closely linked with oil, as transportation accounts for over 60% of global demand. In Q2 2020, global oil consumption is projected to fall by 25M barrels per day.

Along with this, discretionary consumer spending makes up over one third of America’s GDP. The impact of the pandemic across this sector is expected to contribute to a 10% decline or more in U.S. GDP for the second quarter.

As conditions materially improve around the world—with China beginning to open up flights—positive signs are emerging from under the surface. Will BEACH industries quickly bounce back as infection rates drop, or will a slow and painful recovery unfold in the months ahead?