Here are Goldman's favorite dividend and buyback picks to play a volatile 2022

Published Fri, Dec 31 20219:41 AM ESTUpdated Fri, Dec 31 20211:07 PM EST

Market returns in the new year may not be as strong as they were in 2021, and Goldman Sachs has two ways of investing around potentially new dynamics. "In retrospect, 2021 has been as near certain a year for portfolio managers as an equity investor could imagine," Goldman's chief U.S. equity strategist David Kostin said in a recent note. "High return combined with low realized volatility has generated one of the highest risk-adjusted returns in the past century." The S & P 500 has climbed 27% this year on the back of the economic reopening and unprecedented stimulus. However, the bank expects smaller returns in 2022 amid uncertainty around the spread of the Covid-19 omicron variant, geopolitical tensions and monetary and fiscal policies. "Our year-end 2022 target of 5,100 sits at the bullish end of debate," Kostin added. "Our forecast implies that the S & P 500 will rise 10% from today's price, delivering a 12% return including dividends and a risk-adjusted return of +0.6." Kostin added that the combination of rising rates and decelerating growth suggests factor volatility should continue. To play that volatility, Goldman advises investors look to companies increasing dividends and announcing stock buybacks. The firm has a basket of stocks for each, and they have outperformed the S & P 500 in 2021. Dividend-paying stocks typically don't offer dramatic price appreciation, but they give investors a way to get paid during rocky market periods. Stock buybacks can benefit investors by increasing share prices and potentially enhancing future earnings per share. Here are 10 stocks Goldman likes with an above-average dividend yield and the fastest expected dividend growth: Goldman analysts expect these stocks will raise their dividends by an annualized median rate of 11% through 2023, compared with the S & P 500′s median dividend growth rate of 6%. The basket is up 28% this year. Ford Motor , PepsiCo , Morgan Stanley and Qualcomm are among the top names in the 50-stock basket. Ford is expected to have doubled its dividend by 2023. Several analysts are keen on the automaker's stock, as they expect to see a recovery in the auto trade in 2022. Qualcomm is another of the increasing-dividend group. The chipmaker recently issued bullish forecasts at an investor conference in New York and said its growth doesn't rely on individual relationships with customers like Apple . It also reported 56% year-over-year growth in chip sales , despite the global chip shortage, in its fiscal fourth quarter earnings. Here are some of Goldman's stocks in its buyback basket: The firm's buyback basket has gained 33% on a year-to-date basis. The median stock has a gross buyback yield of 7%, while the S & P 500′s median stock has a 1% yield, according to Goldman. HP Inc has a 12-month trailing buyback yield of 25%, the highest in the 50-stock basket. It also appears in Goldman's dividend basket. It's followed by Bath & Body Works, whose buyback yield is 19%, according to Goldman. Apple , Twitter and Capital One are a few of the other names on the list.

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Market returns in the new year may not be as strong as they were in 2021, and Goldman Sachs has two ways of investing around potentially new dynamics.