Goldman Sachs says these buy-rated stocks offer solid dividends

Goldman Sachs advocates for dividend growth stocks as a strategy to provide income and market ballast, particularly amid recent tariff-induced volatility. The firm screens for companies with robust dividend yields (2%+ estimated for FY25/26), strong dividend per share growth (5%+ CAGR 2024-2026), and high dividend coverage. Notable selections include major banks like Citigroup and Bank of America, which are increasing payouts post-stress tests, alongside utilities such as NextEra Energy and American Electric Power, and names like Lowe's and American Homes 4 Rent, each exhibiting specific yield and growth characteristics.

Analysis

Goldman Sachs advocates for a defensive investment posture focused on dividend growth stocks amidst market volatility spurred by new trade tariffs. The firm's screen identifies companies with buy ratings, estimated fiscal 2025/26 dividend yields of 2% or higher, and a projected dividend-per-share compound annual growth rate (CAGR) of at least 5% from 2024 to 2026, all supported by a coverage ratio of 1x or more. The banking sector stands out, with Citigroup, Wells Fargo, and Bank of America all announcing dividend increases after passing Federal Reserve stress tests; these firms are projected to have double-digit dividend CAGRs. In contrast, the utility sector presents a mixed picture: American Electric Power has gained 12% year-to-date with a 7% dividend CAGR forecast, whereas NextEra Energy, despite a 10% dividend CAGR projection, saw its stock fall 3.5% after an executive order ended renewable energy subsidies, a significant headwind given its position as the largest U.S. renewable developer. Other highlighted stocks, such as Lowe's and American Homes 4 Rent, have underperformed year-to-date (down 9% and 5% respectively) but offer solid dividend growth prospects (8% CAGR for Lowe's) and have reiterated their full-year guidance, suggesting management confidence despite near-term market challenges.

Key Decisions for Investors

• Given their successful stress tests and announced dividend increases, financials like Citigroup and Bank of America appear to be strong candidates for investors seeking a combination of income growth and potential capital appreciation.
• Investors should carefully differentiate within the utility sector, weighing the stable performance of American Electric Power against the significant policy risk now facing NextEra Energy due to the termination of renewable energy subsidies.
• For underperforming names like Lowe's and American Homes 4 Rent, consider their attractive dividend growth potential but remain cautious, monitoring for confirmation that management's reiterated full-year guidance can be achieved amidst housing market headwinds.
• While the dividend growth strategy offers a defensive buffer, it is critical to analyze beyond headline yields and assess individual company fundamentals, dividend coverage sustainability, and exposure to sector-specific risks.