Companies with high cash-return strategies will outperform in 2016, and that should come as no surprise, Goldman Sachs' David Kostin said Tuesday.
"Historically speaking, it's been a great strategy for the last 20 years. Seventy percent of the time in the last 20 years, the market has rewarded those companies that have returned cash — dividends and buybacks — as compared with those companies that are investing in [capital expenditures] or pursuing M&A," Goldman's chief U.S. equity strategist told CNBC's "Squawk on the Street."
With the market trading at roughly 17 times forward earnings, stocks are looking expensive, Kostin added. The likelihood that the Federal Reserve will gradually raise interest rates next year creates a challenging environment for equities, and it is likely the market's price-to-earnings multiple will fall, he said.
At the outer end of the distribution, investors can find companies returning a 10 percent cash yield through dividends and buybacks, compared with a 5 percent cash return in the broader market.