Goldman: 10 dividend stocks for flat market ahead

Published Mon, Sep 12 201610:47 AM EDT

Goldman Sachs predicts the stock market will tread water in coming months, describing an environment characterized by extended valuations, below-average earnings, disappointing economic data and political uncertainty due to the election. "We forecast the S & P 500 will follow a 'fat and flat' trajectory over the next 12 months and finish at 2175, roughly 2 percent above the current level," wrote David Kostin, Goldman's chief U.S. equity strategist. As a result, Kostin believes yield will be the "primary source of return during the next year," a strategy that could help investors beat a sideways-trading market. Source: FactSet The bleak outlook is in line with what the firm projected at the beginning of 2016 after the S & P 500 lost 0.73 percent in 2015. "Fat and flat is a catchy phrase but 'sideways, down, and up' more accurately describes the path of the U.S. equity market during the past two months (sideways), our forecast through year-end (down 1 percent) and recovery during the subsequent nine months (up 4 percent)," wrote Kostin. Goldman's year-end price target for the S & P 500 is 2,100. Flat returns appear to be the new norm, Kostin said, noting that even beyond 2017, analysts at the firm think the current market environment won't change much. "Strategically, we expect modest appreciation in the U.S. equity market during the next several years," wrote Kostin. Therefore, Goldman advises clients to stick with dividend-growth strategies, similar to what's worked in 2016. "Given that yield is the primary source of return in a 'fat and flat' stock market, a dividend yield and growth focused portfolio will outperform," said the strategist. This year, telecom and utilities stocks have been among the best performing sectors in the S & P 500; albeit both groups have recently pulled back from highs. To help clients sort through the top dividend payers, Goldman put together a basket of 50 dividend stocks that trade at decent valuations and are expected to continue to boost their dividend payments in the years ahead. As a group, these stocks offer a dividend yield of 2.7 percent compared with 1.9 percent for the S & P 500. They also trade at a forward price-to-earnings ratio of 15.5 versus 17.9 for the S & P index, according to Goldman's estimates. Year to date, the basket of Goldman Sachs' dividend picks is already outperforming the market, up 11 percent versus a return of 8 percent for the S & P 500. Below we highlight some of the picks from Goldman, which include companies like Verizon , Cisco , IBM , Microsoft and Honeywell . To be sure, Goldman also recommends clients seek "secular growth" stocks that can maintain or even increase their sales. CNBC PRO members can read that story here .

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"We forecast the will follow a 'fat and flat' trajectory over the next 12 months and finish at 2175, roughly 2 percent above the current level," wrote David Kostin, Goldman's chief U.S. equity strategist.

As a result, Kostin believes yield will be the "primary source of return during the next year," a strategy that could help investors beat a sideways-trading market.